World Class Procurement Organizations vs Average Procurement Organizations
Recently I had a pleasure to attend a procurement and supply chain event in Dubai. The event attracted senior procurement and supply chain professionals from top organizations in the Middle East who all gathered to witness recent advances in the area of autonomous procurement. Some organizations are the pioneers in adopting next-generation technology solutions in procurement and were the focal point of all the significant discussions going on around procurement transformation.
Organizations were excited about the possible applications of Artificial Intelligence (AI) in procurement and anxious about it at the same time for fear of missing out. However, some organizations have streamlined their procurement process so well that they fall into the category of World Class Procurement Organization.
Now that the discussion is heading towards the term “World Class Procurement”, let’s take some time out to define the term. According to Mr. Lalit Dhamija , a global procurement and supply chain trainer and solution provider, World-Class Procurement stands for fulfilling the expectations of one’s organization and satisfying the sourcing requirements in an agile and nimble manner to ensure that the product or service is obtained optimally at the right cost, time, quality, quantity, and the right place.
The first wave of transformation in terms of the organization moving towards a World Class Procurement happened with the advent of Enterprise Resource Planning (ERP) software. The adoption rate for ERP software was massive, as it helped in easing out the operational complexities in terms of data management that organizations experienced as they scaled up their operations both in terms of geography and workforce. However, as the organizations evolved and as the new technologies emerged in terms of standalone procurement solutions available as Software-as-Service (SAAS)
The procurement transformation revolution slowed down a bit because there was a need to address the limitations that ERP software has both in terms of functionality, flexibility in terms of customizing processes and features and its massive cost disadvantage over SAAS based solution. On the other hand, a SAAS based procurement solution can be customized for a unique procurement need, reduces the operational cost of IT management, and frees up resources to implement strategic projects.
Recently we are witnessing a surge in the number of new technological innovations taking place in the fields of autonomous procurement. Procurement solution providers are building AI based intelligent BOTs to perform repetitive, mundane day to day procurement tasks. These BOTs can make the procurement function of an organization truly autonomous. The efficiency gains obtained through these autonomous BOTs will free up the procurement workforce to focus on strategic initiatives that will help them achieve their objectives in terms of saving benefits, increased visibility, or higher compliance and risk mitigation.
There are some statistics I want to highlight which indicate the massive advantage that the World Class Procurement organizations have over an average procurement organization.
Source: Hackett Group Report
Now that you have clearly seen the cost and efficiency advantage that a World Class Procurement organization has over an Average Procurement organization, lets deep dive into some of the key performance metrics that the World Class Procurement teams have adopted to come out on top –
A comprehensive supplier performance management tool ensures that the organizations have predefined metrics and KPIs that they are going to use to measure the performance of a supplier against the parameters agreed in the contract in real time and decrease the risks associated with a non-compliant and low performing supplier. World-Class Procurement organizations usually follow the Sig Sigma DMAIC in evaluating their suppliers. A supplier performance evaluation tool that is built on the Sig Sigma DMAIC principle can easily do the following –
- Qualitative and quantitative benchmarking and measuring of supplier performance
- Create configurable supplier scorecards based on user-defined KPIs
- Ad-hoc and scheduled performance measurement events
- In-depth performance analytics and intuitive supplier dashboard functionality
- Tracking of performance trends over time
- Issuing Supplier Corrective Action Requests (SCAR) for the urgent stage based supplier issue redressal
- Development of collaborative performance improvement plans for low performing suppliers and diverse suppliers
Another critical performance criterion that the World Class Procurement organizations are performing well is the internal company performance in the execution of contracts and POs. To make that possible, World Class Procurement organizations have put in significant efforts in hiring digital savvy and data-oriented talent pool that help them facilitate the shift to new procurement processes. They have also made considerable efforts to match the on-demand models, help them build trust and security along with compliance.
However, more and more organizations have also started giving weight to upskill their existing procurement professionals. The common barrier the procurement teams face from their current procurement professionals in adopting new technology is an aversion to change. It is imperative then for procurement leaders to choose a solution that offers the functionality that serves their need along with easy to use interface that helps in higher user adoption.
The procurement leaders of today need to have a clearly defined roadmap if they want their procurement function to be in the World Class bracket. They first need to prioritize where the procurement function falls on the strategic importance scale. If the procurement is expected to fulfill the strategic role in the achievement of business objectives, organizations can not just really on ERP software to accomplish the task.
The procurement scope has outgrown ERPs functionality and the need of the hour is to look towards specialty procurement solutions. This will enable them to harness the massive opportunities that exist with-in the procurement function not only in terms of massive cost savings but also in terms of making significant efficiency gain and making the procurement more agile and nimble.