How will procurement automation influence the future of business procurement practices?
Summary
In an environment where automation has become a popular topic of discussion for businesses, its capabilities are both over and under-represented in various contexts. Nevertheless, automation can and has been seen to improve efficiency, reduce costs, and drive profits for businesses.
A major business process that has seen augmentation through automation is procurement. But to understand how automation could continue to influence the future of business procurement practices, the role of automation in improving procurement practices needs to be discussed.
In addition, to come to an accurate conclusion about its influence, the potential challenges and risks of procurement automation also need to be evaluated.
With a better understanding of the role of automation in procurement, it is easier to make an informed decision on whether to utilise it for business procurement practices.
The topic of automation has been a consistently prominent one in today’s business and technology landscape. The advent of technologies, such as process automation, advanced analytics and reporting, workflow management, and version control, has skyrocketed the utilisation of automation for businesses.
One prominent business process that stands to benefit from the capabilities of automation is procurement. As a vital business process, the growth of procurement, in terms of practice and technology, has continually risen over the years.
Automation significantly improves the efficiency of many procurement processes and provides in-depth insight to assist decision-making, and with its constant evolution, has the capacity to offer so much more.
While automation for procurement is not an adequate replacement for human capability, it can offer unique advantages, especially with regard to improving data analytics, optimising costs, forecasting demand, and more.
However, understanding its exact capabilities is important so as not to misconstrue and overestimate its impact.
The role of procurement automation in improving procurement practices
Automation offers a wide array of improvements for procurement processes, including a range of efficiency improvements, cost savings, and strategic advantages. Some ways that automation enhances procurement practices include:
Process automation
Automation can eliminate the manual necessity for repetitive tasks such as purchase requisition, vendor identification, and order processing. This will streamline the procurement process, reduce errors, and save time for procurement teams to engage in more productive operations.
Data analysis and insights
Automation software can process vast amounts of data quickly and generate valuable insights to inform the decision-making process. Important data such as historical purchase data, market trends, and supplier performance can be processed to optimise procurement processes.
Supplier selection and management
Automation software can assess and rank suppliers based on predefined criteria such as price, quality, delivery times, and reliability. This helps procurement teams make informed decisions on which supplier to engage with and which to avoid, enhancing supply chains.
Demand forecasting
Advanced data analytics options offered by automation software can analyse historical data on consumption patterns and market trends to forecast future market demand reliably. This helps businesses maintain efficient inventory management practices and avoid stock issues.
Spend analysis and cost optimisation
Analytics-driven spend analysis tools can examine spending patterns within the organisation. Identifying these spending patterns can assist decision-makers to implement strategies for cost optimisation with potential saving opportunities and price negotiations.
Contract management
Automation-enabled contract management software can simplify the process of evaluating supplier contracts. They offer functionalities to extract key data from contracts, monitor contract performance, and make important data visible to procurement teams.
Risk management
Advanced analytics and reporting can assess the risks faced within the procurement process by monitoring factors such as financial stability, geopolitical conditions, and regulatory compliance. This allows procurement teams and risk practitioners to implement mitigation strategies.
Real-time market insights
Automated reporting features can offer valuable real-time market insights on market conditions, pricing fluctuations, and supplier activities. This allows procurement teams to adapt to evolving market conditions promptly, enhancing the procurement process.
The potential challenges and risks of procurement automation
While it comes with a host of benefits, there are certain challenges and risks associated with implementing automation in procurement functions. Some of the most prominent of these include:
- The cost of implementing automation software may not be feasible
- Advanced analytics heavily relies on high-quality data. If this is absent, the output will be less than ideal
- Certain automation software may require in-house personnel with the aptitude to operate them
- Integrating automation into the systems in use may prove challenging in certain circumstances
- The usage of automation software may be regulated in certain regions, impacting usability
- Over-reliance on automation may result in a lack of human input, resulting in unfavourable outcomes
Understand the role of procurement automation in the future of business procurement practices
While automation is a frequent topic of discussion in many business circles, understanding its capabilities properly is essential to inform a business strategy.
As for procurement, automation stands to offer a wide range of benefits that can provide efficiency enhancements and cost reductions. But it is important to weigh these benefits against the potential challenges and risks when making the decision to invest in procurement automation.
As it stands, the utilisation of automation is expanding rapidly and businesses need to adapt to the changing market conditions that occur as a result. Procurement consulting may be an effective way of driving procurement transformation to ensure competitive advantage is maintained.
