Digital Procurement: More Important Now Than Ever
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Digital procurement aims to automate and streamline procurement processes through digital technologies. It defines procurement as the process of purchasing goods and services from external sources. The evolution of procurement has moved it from being savings-driven to focusing on generating business value through strategic supplier relationships. Digital procurement provides benefits like process automation, spend transparency, and efficiency gains over traditional paper-based procurement. It utilizes technologies like e-sourcing platforms, supplier portals, procurement suites, and analytics to transform the source-to-pay process.
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Digital Procurement: More Important Now Than Ever
- 1. Digital Procurement More important now than ever
- 2. Procurement Definition & Evolution Topics Covered 1 Procurement Initiatives Post COVID 19 3 Procurement Definition & Evolution 2
- 3. Digital Procurement Definition & Evolution
- 4. What is Procurement Procurement is the process of purchasing and acquiring products or services from external sources Procurement activities includes but not limited to- purchase planning, sourcing, negotiation, risk management, legal and value analysis Procurement aims to boost corporate performance by negotiating better deal from the suppliers Procurement role is constantly evolving and has changed from being savings driven in to value driven Procurement aims to generate business value by establishing multi dimensional relationships with suppliers
- 5. Procurement Process Overview Interrelation between strategic Sourcing, Procurement Operations and Vendor Management Analyze spendManage demand Define sourcing strategy Negotiate contract Manage contract Create/refine Supplier groups Initiate Relationship Define performance expectations Manage Supplier Risk & Compliance Manage Performance Authorize payment & settlement Receive goods/service Coordinate delivery Assess Relationship Create purchase order Route approval Create requisition Identify need Manage Risk Qualify suppliers Governance & Performance Mgmt Strategic Sourcing Procurement Operations Vendor Management
- 6. Procurement Evolution in Time… LEGEND Early Days Growth Stage Mature Technology Future EventTraditional Procurement Paper based, Highly Transactional Driven Procurement transactions aided by Mainframes, PC, ERP, EDI Internet Driven Communications Internet Enabled Procurement Cognitive Procurement < 5 Years Digital Procurement RPA / AI / ML / Blockchain / Digital Currency Cognitive Procurement Today Electronic System Driven Internet Aided Communications via Emails, Supplier Websites Digital Procurement is software that captures and automates existing manual S2P transactions in to automated, rules-based, platform driven process, interfacing and exchanging data across multiple systems, including web-based and local applications Cloud Suits, Supplier Networks, Analytics Orange Scape Software, Inc, - Confidential - @All Rights Reserved
- 7. Traditional Vs Digital Procurement… Online Search Online Agreed Online ePO Online Confirm ed Online Ship Notice Online GRN Online Invoice Online Remit- tance Compliance – Hard Savings Expediting / Operational Excellence Invoice Automation Have it approved Send Purchase Order Confirm the reception Reconcile Invoice Identify what you need Check if supplier agrees When will it be delivered? Inform about Payment
- 9. Why do they invest in Digital Procurement Procurement represents major function of the business, having operational and commerce impacts on multiple departments Average company spends as low as 35 to as high as 65 percent of its revenue on purchases from third parties Procurement process excellence and strategic sourcing initiatives alone can drive 7-14 percent of realized savings Yesteryear companies focused on 60-70 percent of in-house value addition, with advent of globalization less than 20 percent of value is in-house, rest is managed from external sources Future businesses is volatile and highly unstable owing to interoperability of global markets, focus on procurement is moving away from cost savings and in to revenue contributors via value addition initiatives like Supply Risk Procurement Finance initiatives like – early payment discounts, reverse factoring initiatives provide more ROI than traditional treasury investments making procurement direct contributor in revenue
- 10. Business Challenges & Procurement Opportunities – Post COVID Business Challenges – Post COVID Digital Procurement Opportunities Compete in an increasingly global market and realize profitable growth strategies • Create supplier partnership agreements, service contracts to support new products or services introductions in new emerging markets Ongoing cost reduction and profit margin pressure • Strengthen e Procurement capabilities to realize bottom line saving targets via process efficiencies Manage the cost and availability of products and services as well as fluctuating prices and scarcity of raw materials … • Explore emerging supply markets, identify alternative sources of supply or find substitute products and services by leveraging RF(x) / Auctions capabilities • Leverage spend analysis capabilities for improved decision making in procuring raw materials, negotiating long term contracts with suppliers • Use eProcurement & Supplier portal capabilities to manage supply schedules and re-prioritize based on forward demand and forecasts Increased focus on innovation, time to market, or new product and/or service introductions • Leverage supplier capabilities in product, service, and process innovation by establishing strategic relationship with supplier, leverage supplier information & performance management capabilities to understand supplier’s business better • Establish and optimize true interdisciplinary cross functional teams that operates both between organizational departments as well as with suppliers by using user management, workflow management capabilities • Design, implement and operate a procurement operating model which allows for changing strategic and operational needs
- 11. Business Challenges & Procurement Opportunities – Post COVID Business Challenges – Post COVID Digital Procurement Opportunities Realize and sustain value from mergers, acquisitions, and joint ventures • Leverage scale and best practices to obtain better pricing and terms & conditions whilst maintaining consistent and integrated / centralized procurement practices and policies Meet legal, financial, and safety regulations. Reduce legal, financial and operational risk to the organization • Meet regulatory and internal control standards for all 3rd party working relationships by leveraging supplier risk management components • Mitigate risk and ensure value delivery and cost competitiveness of suppliers by effective contract, supplier, and risk management Optimize the organization's operating model for tax and legal structures • Realize tax benefits by redesigning the procurement organization using supplier profile analysis, identify and engage with suppliers with government Aides and tax benefits
- 12. How to enable digital procurement
- 13. Digital Procurement Technology- Source to Pay Cycle Yes Pay NoOn Time Payment ? Discounting Penalties Payment Terms Discounting PAY Email / Login #4 (Status & Discounting) Paper Invoice eInvoice Open and File Scan & OCR Gather all invoices Manage Exceptions ReconcileINVOICE Paper / Login #3 Automated Source / Contract Tender Contract Supplier Base Track KPI Publish in Catalogues PRICE Email / Login #1 Email / Login #3 (PO) Login #2 (catalogue) Catalogue Search Request & Approve Receive Start Request Search Fill/amend accounting Approval Workflow Receive Receiving Workflow PO GRN Time Sheets Items Forms Services Contract
- 14. Digital Procurement Components 1) Find a Deal (Sourcing) Spend Visibility Community Sourcing & Contracts Analyze Discover Plan Negotiate Track Info and KPI 2) Sign the Deal 3) Broadcast it Sourcing & Contracts Contract Storefront Catalogue 4) Buy it 6) Pay Sourcing Contracts Purchase Orders Shipping Notices eInvoices Invoice Status Payment Status Early Payments Catalogs Supplier Collaboration SeamlessCollaborationWith Supplier 5) Be Invoiced eProcurement Request Approve Receive Process Invoice Pay Finance
- 15. What is needed ? Order Pay Find & Catalogue Engine Spend Analysis eSourcing eContracts Negotiate A Buying Tool A Supplier Portal An Accounts Payable Tool Best Value!
- 16. The Buying Tool Procurement Purchase Requisition Cost Assignment Contract Compliance Approval Workflow Buyer’s tools Purchase Order Management Shipment Notice Visibility Goods/Service Reception Invoice Approval Payment Booking And more… KPC A Buying Tool KPC
- 17. A Catalog Content Engine CatalogManagement A Catalog Engine 30% more Complaint Internal (private) Catalogs External Catalogs Catalog Reporting Catalog Validation Catalog Reporting Content Validation And more… KPC
- 18. The Supplier Portal KPCSupplierPortal KPC Supplier Portal Purchase Orders Change Orders Cancellation Orders Advanced Shipment Notices Invoices Invoice Status Remittance Advices Catalog Management And more… KPC
- 19. The Accounts Payable Tool KPCInvoiceAutomation Accounts Payable Tool Invoice Creation Credit Notes OCR Invoice Invoice Reconciliation Tolerance Settings Invoice Dispute Approval Management Early Payment Discounts And more… KPC
- 21. Catalog Buying Tool Benefits Screwdriver for the technician Complex services architectural services Collaboration Facilities management Free-text Business for the manager Forms Work gear for the team Policy Compliance One Process Unified Requisition Management One Interface Process Automation Spend Transparency Efficiency Gains
- 22. Buying Tool Benefits Process Groups Free Text Simple Items Items with Options Services Complex Buying Process Free Descriptions Catalog PO against Contract Invoice Against Contract Collaborative Pricing Compliance “n Bids & Buy” Audit Catalog Contract Contract Contract Fulfilment Goods or Services Receipt Spot Receipt Goods or Services Receipt No Receipt No Receipt Milestones Goods Receipt Invoice Reconciliation PO & Goods or Services Receipt PO & Goods Receipt PO, Contract & Receipt PO & Contract Contract PO & Milestones, Time-Sheets, Goods Receipt Implementation Effort Tool Needed Spot Buy/ Collaboration Catalogue Smart Forms in Catalogues “Contract Flip” invoices Various: Kits & Bundles, Punch-outs, Contracts
- 23. The Supplier Portal Benefits InvoiceCatalog Procurement PO Change Order Cancel Order Order Confirmation Adv. Shipment Not. Spot Buys Catalog Upload Catalog Change Buyer Approval Invoices Invoice Status Remittance Adv. For 1 supplier this means: • 5 profiles to manage • 5 separate logins • 5 separate process • 5 separate supplier approaches SIPM Certifications Profile Details KPI Management Source RFx eAuctions Supplier Data
- 24. The Supplier Portal Benefits KPCSupplierPortal End to End digital transformation across all the touch points Invoice CatalogProcurement PO Change Order Cancel Order Order Confirmation Adv. Shipment Not. Spot Buys Catalog Upload Catalog Change Buyer Approval Invoices Invoice Status Remittance Adv. SIPM Certifications Profile Details KPI Management Source RFx eAuctions Supplier Data
- 25. Accounts Payable Tool Benefits Quality of data received Inbox Paper EDI Email eInvoiceRules Open – Scan – Archive Integrate File – Process Ready
- 26. Accounts Payable Tool Benefits OCR Scanning Solution Paper & EDI Supplier Portal Legal Invoice Mail, email, fax, EDI Workflow OK WRONG Credit Memo Legal Invoice System Check Workflow OK WRONG Credit Memo WRONG Legal Invoice Business Rules Workflow OK WRONG
- 27. Accounts Payable Tool Benefits Invoice Receipt Data Entry of invoice to system 3 way match Process Exceptions Supplier Inquiries Paper Process AP AP AP Proc AP AP Scan / email / Paper Auto AP AP Proc AP APAuto Auto Digital Invoice Proc APAuto Auto Auto Proc Proc Auto
- 28. Benefit of Electronic Invoices on Exceptions Reductions 30% Now Year 2 Year 4 3% Invoice Exceptions Reduction From Electronic Transactions Benefits of eProcurement + eInvoicing 15%
- 29. Benefit of Electronic Invoices on Exceptions Reductions10X Benefit to eInvoices when ePO is used 30% Now Year 2 Year 4 3% Invoice Exceptions Reduction From Electronic Transactions Benefits of eProcurement + eInvoicing 15%
- 30. Supplier Portal : Orders – Expediting - Invoicing User&MasterData Request & Approve Requisition Import Invoice & OK to Pay CopyGRN ImportPO Copy Receiving One Single Hub Contract Purchase Order Blanket Order Invoice Management Conceptual Architecture… Badging System (Temp Labor) Item Master Mappings Contract Terms Catalogue Spot Buy MM / DA Budgets & Accounting HR System (Users) MM / DA
- 32. Procurement Initiatives Post COVID 19 Cost Reduction Drive Business Actions Enabling Tech Capabilities Limit non catalog expenditures • Monitor and reject invoice only spends ( without PO or Contracts) • E Procurement Tool with dynamic workflow capabilities • Contract Management • Invoice Reconciliation Enforce stringent budget controls and mandatory approvals • Apply category specific budget controls, • Notify budget owner if budget limit crosses more than 80 % • Budget Controls, • Budget Approver Workflow, • Budget Notifications Bring more spend under management • Identify addressable vs non addressable spend and bring all the spend categories and suppliers under eProcurement suite • Spend Analytics, • Category Management Capabilities • Budget Allocation Analyze and prioritize spend based categories • Analyze spend data to understand high spend categories and re-allocate priority to high impact, revenue linked expenditures • Spend Analytics, • Category Management Capabilities • Budget Allocation Review supplier contracts and re-negotiate terms to Increase tiered pricing discounts and reduce MOQ terms • Review contracts nearing expiry dates • Contracts older than 2 years and contract with high spend records to re-negotiate terms to reflect current market scenario • Contracts Management, • Custom Reports
- 33. Procurement Initiatives Post COVID 19 Supply Risk Management Business Actions Enabling Tech Capabilities Enhance visibility of supply network • Identify critical suppliers across critical categories that impact revenue • Identify supplier geo location to note risks and capacity constraints • Monitor public data sources for litigation, solvency, downsizing proceedings • Supplier Risk Management • Supplier Information & Performance Management Systems • Supplier Portal Plan for proactive buffer stocks with the high risk supplier categories • Readjust forecasts to manage the forward demand and identify required buffer stocks • Plan for business contingency and evaluate alternative suppliers • Spend Analytics, Planning & Forecasting • Category Management Capabilities • Inventory Management • Supplier Risk Management • Supplier Information & Performance Management Systems Diversify supply base to mitigate risks • Identify alternatives for high risk/impact suppliers • Initiate new supplier qualification process, establish local supply base • Split the demand between 2-3 identified vendors • Spend Analytics, Planning & Forecasting • Category Management Capabilities • Inventory Management • E Procurement, Contracts, Sourcing • Supplier Risk Management • Supplier Information & Performance Management Systems • Supplier Community, Marketplace Co-work with critical suppliers to offer a joint recovery plan • Setup recurring status check calls with suppliers to understand their supply capability, production stoppage issues to monitor risk for critical categories • Work with suppliers to absorb shock and ensure business continuity plans are In place • Spend Analytics, Planning & Forecasting • Category Management Capabilities • Inventory Management • Supplier Risk Management • Supplier Information & Performance Management Systems
- 34. Procurement Initiatives Post COVID 19 Working Capital Management Business Actions Enabling Tech Capabilities Enable Virtual Card Payments • Identify tail spend suppliers with ACH / Cash payment methods and re-negotiate payment methods • Digital Payments • Supplier Portal • Invoice Reconciliation • Spend Analytics Invest on early payment discounts programs • Invest on offering better terms of early payment discounts that would help the supplier and contribute to revenue by yields on reverse factoring • Digital Payments • Supplier Portal • Invoice Reconciliation • Early Payment Discounts Re-negotiate payment terms with suppliers to increase DPO ( Days Payable Outstanding) • Identify suppliers with more favorable payment terms and re-negotiate the payment terms to increase WCM position • Contract Management Capabilities • Supplier Information & Performance Management Systems • Invoice Management Route more spend to suppliers with tax incentives, government aides • Profile suppliers with WMBE, and other government aid eligible categories • Engage with identified suppliers to extend payment terms and more favorable discount terms • Spend Analytics, Planning & Forecasting • Category Management Capabilities • Inventory Management • E Procurement, Contracts, Sourcing • Supplier Information & Performance Management Systems • Supplier Community, Marketplace Dispose inventory to unlock value • Take stock of existing inventory value and expected receivables value, increase monetization by disposing or consuming • Identify goods within return eligibility dates and return goods to supplier if applicable • Spend Analytics, Planning & Forecasting • Category Management Capabilities • Inventory Management • Supplier Information & Performance Management Systems
- 35. Business case for digital procurement
- 36. Scenario: This department has 10 or so employees who perform the purchasing function. There are looking to make themselves more efficient through the use of procurement software. Here are a few facts listed below about their situation: On Premise Year 1 Year 2 Year 3 Year 4 Year 5 Total License 15000 15000 Support 3000 3000 3000 3000 3000 15000 Upgrade 0 0 7500 0 0 7500 Server 4000 0 0 4000 0 8000 Database 4800 800 800 800 800 8000 App Server 4800 800 800 800 800 8000 Implementation 20000 0 12000 0 0 32000 Internal Support 15000 15000 15000 15000 15000 7500 Training 5000 0 5000 0 0 10000 On Premise Total 71600 19600 44100 23600 19600 178500 Cloud Year 1 Year 2 Year 3 Year 4 Year 5 Total Subscription 15000 15000 15000 15000 15000 75000 Implementation 15000 0 0 0 0 15000 Training 0 0 0 0 0 0 Support 0 0 0 0 0 0 Cloud Total 30000 15000 15000 15000 15000 90000 •Total Costs (On Premise) :- 1,78,500 USD •Total Costs (KPC Cloud) :- 90,000 USD •Cloud Cost Benefits : - 88,500 USD •KF Procurement Cloud is 49.6 % more beneficial compared to on premise Business case assumptions- “Mid Sized Department” • $600K in purchasing expenditures per year • Need to automate PO creation and make issuing PO’s to suppliers easy • Choice 1: On-premise software that costs $15,000 USD up-front • Choice 2: KF Procurement Cloud software that costs $15,000 - $20,000 USD per year
- 37. Cost Benefits - “Mid Sized Department” Hard Benefits: Come from firm commitments to make measurable differences in the amount of revenue generated or savings realized. When claiming hard benefits, companies will actually reduce their expenses budget because of the project impact Benefits (5-Years) Activity AP Automation FTE Savings AP Automation Efficiency Gains Request to PO Savings Printing Cost Reductions Invoice Processing Cost Total Benefits (Projected) Cloud ( 5 Years) Low Estimate ( in USD) High Estimate ( in USD) 400,000 600,000 400,000 600,000 30000 90000 43750 175,000 700,000 21,00,000 1.5M 3.5M FTE Assumptions: • Minimum 1 FTE reduction owing to AP automaton is assumed • FTE Cost per annum is assumed as low as 80,000 USD and as high as 120,000 USD • Cost savings is projected by multiplying FTE cost * 5 years Efficiency Assumptions : • Printing Costs: Benefits of saving low estimate of 0.25 USD - high estimate of 1.00 USD per page multiplied by 30 % of assumed invoice count of 35000 * 3 pages * 5 Years • Sterling commerce report projects cost of invoice processing as low as 5 USD to as high as 15 USD. Invoice Automation could potentially save 80 % of 35000 invoices * 5 or 15 USD multiplied by 5 years • Forrester Benchmark states that 1 FTE can process 7500 Invoices per year and using ePO and e Invoice same FTE can process 35000 Invoices – increase of 366 % throughput- Our benefits is calculated as cost avoidance of adding 1 more FTE’s to AP * 5 Years- adjusting for future growth and scalability • Request to PO process can save as low as 1% and as high as 3% gains in company spend of assumed 600K USD * 5 Years Soft Benefits: Come from firm commitments to make measurable differences in the amount of revenue generated or savings realized. However there may be some risk of attaining the benefits from other factors. Benefits associated with increased throughput owing to digital capabilities is considered as soft benefit or cost avoidance
- 39. Digital Procurement Challenges Goal of the transformation is unclear ● Many companies don’t know where to focus or how to adopt the many technologies available, be it stand alone procurement suits or advanced analytics, automation, AI driven suits. The result is an ongoing debate about which methodology to use and how to adopt the right digital tools Lack of coordination and support within Organization ● Many companies dive into digital with a disconnected approach, hoping that at some point the efforts will simply click together. Unfortunately, that’s rarely the case. Instead, efforts are often disconnected, duplicated and irrelevant in many cases Lack of cost commitment ● Many companies hesitate to embark on digital transformation journey owing to the exorbitant costs involved from the existing software and service providers. This stands in contrast to the cost saving goals of procurement organizations Resistance to change ● Digitalization brings new opportunities, especially in Source-to-Pay, SRM activities however procurement managers would like to extend their existing operations in digital mode. This defeats the purpose of digital transformation and provides no measurable results or future scalability aspects
- 40. How to overcome these challenges Have a clear picture of the digitalization needs. ● There’s a broad range of digital solutions and technologies that can add value across the procurement value chain, before deciding on which technology to use, assess your current maturity levels. Your primary goal should be to digitalize all the analog driven activities. Phase by phase transformation is more successful than big bang change Lack of coordination and support within Organization ● In the future, procurement will no longer be a large siloed department but will be integrated into the broader organization’s value chain. Unnecessary processes will be removed, and each functional resource will have to come together to form a network of expertise to address business issues. Form a centralized, multi department- transformation team to coordinate the efforts Lack of cost commitment ● Identify a tech partner with a full suite platform capabilities which offers end to end procurement transformation without breaking the bank, Ensure that software capabilities are strengthened by in-house implementation and advisory services offering a seamless, single window experience to the customers Resistance to change ● Select a technology partner who offers pre-built target operating models, refresher trainings and dedicated customer success teams to help with the process transformation and change management activities in a well designed, phased roll-outs
- 41. Kissflow Procurement Cloud Spend Reports Turn data into actionable insights Procure to pay e-Procurement Guided Buying Invoice Automation AP Automation and Compliances Strategic Sourcing Sophisticated Global Sourcing Contracts Management Contract workflows & Execution Supplier Management Manage Suppliers And Risks Inventory Management Track and Manage Inventory Expense Management Travel and other Expenses
- 42. Trusted by 1,000+ customers