How automation helps to boost the value proposition of procurement.
The procurement function is facing a transformation, and automation technologies are set to ignite the sparks of digitalization. While digitalization is a top priority for 50 % of procurement executives and another 37 % indicate they are already looking into opportunities, the current level of maturity for almost all organizations (98 %) is labeled as very low to medium. The strategic relevance of procurement in the value chain is no longer a question of ideology, but rather an established truth. In the advent of a technological revolution, businesses are increasingly realizing the potential of upcoming ‘disruptive’ automation technologies. In these trying times, how can businesses be prepared to face the impending wave of automation? To answer this, it is important to understand how procurement is influenced by automation.
What challenges in procurement can automation address?
Technologies such as robotic process automation (RPA), machine learning (ML), artificial intelligence (AI) – sometimes referred to as ‘cognitive automation’ – are capable of automating, by some estimates, up to 60% of the source-to-pay (S2P) process. Automation technology can help overcome rudimentary procurement hurdles such as the utilization of resources required to perform mundane day-to-day operational procurement tasks. A few examples of such tasks include converting a purchase requisition into a purchase order, invoice approvals, document comparisons and tracking, etc. Significant spend overflow due to lack of compliance, efficiency loss and transaction costs – approximately 3-4% of total spend – can be eliminated through automation. Automation technologies can also assist in significantly improving the overall value proposition of the procurement function. According to CAMELOT’s recent “Digital Transformation in Procurement” study, RPA is already used by 30 % of the companies surveyed, while cognitive automation and predictive analytics lag behind with only 5 %. Nevertheless, over 75 % of the remainder demonstrate willingness to adopt such technologies to support the transition to a more strategy-focused procurement organization.
How can automation address procurement challenges?
Providing transparency in the supply chain is a growing concern for consumers and businesses alike. The procurement function can achieve transparency, for instance, by automating smart contracts in a blockchain network. Smart contracts can select suppliers according to a predefined set of criteria, which would ensure transparency by tracing the product back to its initial origin. Additionally, the value proposition is strengthened by the further reduction in operating costs and increase in efficiency as RPA bots can automate monotonous tasks to eliminate human errors and channel resources to more strategic tasks. The potential disruption of the traditionally accepted decision-making management pyramid is looming as automation takes over operational procurement.
Why strategy and organization go hand-in-hand with technology?
Transitioning through a cusp of technological evolution is a challenge many businesses fail to overcome. The procurement function is a critical aspect of the supply chain and is likely to go through an evolution of its own with many use cases being developed to potentially reduce complexity, risks, time and costs while making the supply chain more reactive and flexible. While many such use cases appear attractive and are being further substantiated through research, there is a need for urgent focus on the strategic and organizational aspect of such a technological transformation. Adapting and embracing a technology is just one aspect. Developing long-term goals, creating sustainable business practices, accepting and driving change and adoption, implementing new processes, building skillsets as well as creating new organizational roles, responsibilities, business models and new strategies are significantly bigger challenges. Moreover, organizations identify change management as the top success factor (49 %) for digital transformation in procurement, alongside leadership support (28 %) and know-how build-up (26 %). Unless research and best practices identification ease the way into a successful transition for businesses, the organizational and strategic impact of such transformation will remain the greater challenge at hand.
But how can automation change the procurement function from a strategic point of view?
CAMELOT is undertaking several research projects in cooperation with universities to further bolster the effects of automation technologies on the procurement function at multiple levels. Understanding the impact of technology through rigorous research, combining the viewpoints of theorists and practitioners, will better equip us to address the implementation of automation. To start with, if you are interested in contributing to the research titled “Strategic and Organizational Implications of Automation Technologies on Procurement,” leave a comment and we will get in touch with you. Or if you are curious about the outcomes of the research, follow us and watch this space for more academically-driven research results.
Beyond automation, to understand the top priorities, critical success factors and goals for digital transformation initiatives in procurement, explore our Digital Transformation Survey in Procurement here.
We would like to thank Albena Bogoeva for her contribution to this article.