Until now, procurement has largely been stuck with legacy technologies that kept the function operating in the past, but are unable to meet the changing needs of in-house customers and suppliers in the changing business environment. It is time to bring procurement into the future, with new technologies that generate value that contributes to business needs.-BY Valerie Gomez

There has been plenty of discussion about the need to bring procurement into the advanced technologies age to enable the capability to provide critical information such as spend by category expenditure on a deeper level, supplier status, trends reporting to internal customers, and predictive analytics. Yet the function remains stuck in the past, with legacy procurement systems that have often been upgraded in a piecemeal fashion.

This has kept procurement focused on past activities rather than developing adaptability and predictive abilities. Bringing procurement into the future by automating the function with new technologies can free up staff time to focus on delivering higher-level services, and also generate information that supports business goals in a complex business environment. The challenge is choosing the right procurement technologies capable of delivering a responsive procurement process and analytical insights across the spectrum of the procurement function.

Letting Technologies Do the Manual Labor

In the post-COVID world, procurement has come into the spotlight, and not necessarily for good reasons. During the pandemic, procurement was expected to overcome some of the supply chain issues when team members had to unexpectedly and rapidly search for goods and services replacements from new sources while maintaining cost control. The inadequacies of many procurement legacy systems became apparent as the need to reduce risks, increase information transparency in the supply chain, and provide better analytics to decision-makers became critical.

Older procurement systems were typically designed to track requisitions, payments, supplier performance, contracts, and supplier status - but have many information gaps. They do not provide insights to internal decision-makers, identify emerging new risks, maximize visibility in spend beyond the traditional totals by category, or provide strategic direction for long-term business competitiveness. In addition, procurement software is frequently not fully integrated, creating a difficult situation for procurement in that separate programs need to be used and monitored.

Fully automating procurement is a strategic decision, because it frees up procurement staff to concentrate on delivering insights to functions that include finance, IT, legal, internal buyers, contract department and other stakeholders. This is opposed to the simple procurement-department buying process. In general, procurement legacy systems still require too much paper handling, and they are too simplified when advanced technologies such as Artificial Intelligence (AI) can manage many of the day-to-day activities, for example bot-chatting with vendors and customers, making bid comparisons, and producing more informative spend analysis that continues to be done on cumbersome spreadsheets. AI can source vendors and assist with contract management, machine learning can facilitate approval processes, AI and machine learning together can produce predictive analytics, and new communication tools can enable sharing real-time information across the organization. Internet of Things devices can monitor physical asset movements, and cloud computing is enabling real-time information sharing at an affordable price.

The reason current procurement technologies are proving woefully inadequate is that they do not produce services and information in alignment with company needs. Businesses need procurement to be efficient, accessible, insightful, and helpful in making sustainable purchasing decisions. Sustainability refers to both continued access to critical goods and services and also environmentally sustainable purchasing. Digital procurement offers solutions for connectivity and insights which leads to better decision-making, efficiency, and collaboration.

Removing Technology Barriers

What is stopping procurement functions from moving away from legacy systems and into the future of advanced technologies? Why is it a slow process, especially when it is so important for risk management, innovation, and visibility into the supply chain to avoid disruptions? Of course, the cost of technology upgrades is one reason given, but it seems that it is more a lack of recognition of the importance of procurement in business competitiveness and long-term success. Procurement has traditionally been viewed as a “paper pushing and rules compliance” function, rather than a function that supports management decision-making and assists the organization with meeting business short-term and long-term business goals. As long as senior management views procurement as a “paper pusher” function, companies are not going to invest in new technologies that enable networking, predictive analytics, full automation, and risk management.

Focusing simply on spend limits procurement value, but a focus on spend has been the approach for decades. Even when supplier diversity was initiated as a success factor, the focus was on spend rather than developing supplier relationships for diverse supplier business growth. Procurement is traditionally viewed as an ordering and order tracking system rather than a management system, another reason there has been a reluctance to invest in state-of-the-art technologies. Yet there are technologies like cloud-based procurement systems that can automate every step in the procurement process and benefit organizations in a variety of ways.

Procurement in the cloud enables leaders across the organization to access timely in-depth information for decision-making, and thus gain increased visibility. It also allows them to gain increased transparency (which promotes increased supply chain diversity) and collaborate without regard to location to break down silos, monitor compliance with government regulations, and manage supplier relationships through coordinated monitoring of suppliers.

Creating Value Through Technology Interfaces

The real responsibility of procurement is to create value for the business, and it needs to be adaptable to remain a strong decision support system as the business environment changes. Technology that delivers deep insights to users across the organization enables those users to make good decisions based on needs. Legacy procurement programs are frequently poorly designed, rigid and/or do not interface, requiring procurement staff to spend their time doing work that could be automated. New technologies can interface so information is shared across applications. This gives procurement adaptability and flexibility, as new software can be seamlessly added. Kearney presents a model in which an AI hub is an integration point for procurement functions, including smart contracts, risk monitoring, spend visibility, e-invoicing, cognitive buying, and supplier tracking. Each is an individual component tied together by an AI hub.