Digitalisation of Procurement – FAQ Part 2
There are many pressing questions related to digitalisation of procurement. We have compiled some answers below to the questions our customers ask about sustainable procurement, risk management and artificial intelligence. You can find more FAQs here.
- Why shift to sustainable procurement? What are the benefits?
- How do digital systems take sustainability into account?
- How do digital systems promote risk management?
- How do digital purchasing systems bring value to an organisation?
- What is the role of AI in driving digital procurement?
1. Why shift to sustainable procurement? What are the benefits?
Procurement leaders, public and private, looking to stay ahead cannot underestimate the growing importance of sustainability in sourcing. That means having a procurement strategy that accounts for the overall cost of doing business in terms of people, planet and profits, in other words taking environmental, social and economic responsibility for the business impacts of your organisation and core stakeholders. While some organisations still see investing in sustainability as an added cost, most enlightened leaders now understand that sustainable procurement ultimately has the potential to drive down spend, help eliminate waste, and boost brand value.
A full sustainability review of your global supply chain can also help mitigate risk, making you more resilient to supply shortages or production breaks related to environmental or social upheavals, within your supply-chain, particularly in emerging markets. Afterall it only takes one component supplier with a poor social or environmental policy to seriously disrupt your organisation’s supply chain as well as damage your own brand reputation.
2. How do digital systems take sustainability into account?
Having a clear sustainability policy in place and making it part of your digital procurement requirements, will allow you to hold your internal and external stakeholders to a much higher standard of legislative and ethical compliance, as well as lead you towards smarter and more sustainable supplier choices, while providing you with a competitive advantage in times of uncertainty.
Examples of ways to embed the triple bottom line into your sourcing requirements could include setting up environmental impact targets such as CO2 reduction goals; stipulating locally sourced goods; requiring lean transportation times and delivery routes or the use of low-carbon green fuels and green packaging. In public sector or socially-driven enterprises, strategic sourcing can also be in support of strategies for a more inclusive society in areas like diversity, gender and other equitable business practices.
3. How do digital systems promote risk management?
Digital procurement and contract management help you plan ahead to mitigate risk in many important ways:
- A systematic and companywide approach to sourcing and contracts gives procurement teams better control of overall operations, making it easier to assess supplier performance as well scrutinise how supplier activities are directly impacting proﬁtability or potentially posing risk.
- The transparency that digital systems bring also helps ensure that all sourcing activities are compliant with company policy, helping eliminate rogue spending and costly errors or legal escalation that could otherwise be avoided.
- When you integrate your digital procurement systems with other critical systems such as ERP and CRM, you will be better positioned to put your data fully to work, enhancing your planning and efficiency through improved data visibility as well as analysing current risk and predicting future risk scenarios.
- Digital systems let you design your supply chains in advance as well as help you rapidly reconfigure in times of crisis or sudden disruptions. You can also manage risk by adding specificity to your requests for proposals. For example, tackle geographical risks by setting the selection criteria in your digital sourcing tool for various global locations, while still attracting the highest quality candidates.
- In times of crisis you will have minimal risk to business continuity by having all your records digitally stored. That means you’ll be well-positioned to quickly and easily restore your procurement function using just a digital device and a Wi-Fi connection from any location.
Learn more about risk management in procurement.
4. How do digital purchasing systems bring value to an organization?
Digital technologies can help procurement enhance their planning, collaboration, analytics and engagement using a portfolio of tools along the entire procurement value chain, including planning, sourcing, contract management, order delivery, payment control and supplier management. Here’s how and why.
- With today’s markets characterised by financial uncertainty, the capacity of procurement professionals to become both ‘cost killers’ and ‘revenue generators’ is increasingly recognised as a potential competitive advantage for organisations.
- Enabled by digital technologies, procurement can be streamlined with other business areas including Finance, IT, HR, supply-chain management and risk management to creating synergies and economies of scale that will expand both the top and bottom lines and help drive innovation internally.
- Externally, as global supply chains become increasingly complex and the lines blur among suppliers partners and customers converge, digital tools that enhance collaboration open new opportunities for value-add through shared innovation.
- Digitalisation also aids future planning for example by predicting demand and these predictive analytics can easily be shared among stakeholders to accelerate product lead times and enhance supplier performance.
- A failure to respond to today’s digital opportunities may on the other hand result in lost value for an organisation through missed opportunities and a diminished business performance.
A good digital procurement strategy can create significant value, helping organisations more quickly and nimbly overcome business challenges while taking advantage of new market opportunities. Taking a digital approach to procurement might even lead to the creation of a new value proposition for your procurement.
5. What is the role of Artificial Intelligence (AI) in driving digital procurement?
In procurement, AI and Machine Learning (ML) are generally seen as the backbone of many next-generation solutions, with AI having the potential to drive predictions and decisions and ML being used to develop better procurement practices to drive performance.
- AI is now most widely used in cost management and reporting, but is expected to bring a lot of future added value to procurement in areas such as virtual assistants, communicating interfaces, predicting human behaviour and market performance, automated risk management and independent decision-making.
- Machine learning is most widely used in cost-management processes. In the future, machine learning is expected to bring efficiency and intelligence to almost every application of new technologies, for example, through analyses and decision models predicting the market performance of buyers, suppliers, and the market in general.
- One case in point for AI is a recent experiment from Goldman Sachs, Cisco, and others, where AI proved to be a match for top-performing contract attorneys in accuracy reviewing documents. On average, the machine learning program was more accurate in detecting risks in the contracts than the lawyers.
- Tools like on-time delivery predictors can also add value, particularly for manufacturing companies who depend on the timely arrival of components and materials to fill order deadlines. Innovations like this are expected to be increasingly common in the coming years.
You can find more frequently asked questions about the digitalisation of procurement here.