Authors: Sampo Hämäläinen, Vuono Group & Teemu Marttinen, Zeal Sourcing
We joined forces with Vuono Group and organised a forum for nine procurement leaders from large and medium-sized companies to talk about procurement systems, procurement system architecture and the latest trends. Here are the key learnings and insights from the session and the discussion.
“The role of procurement has been continuous crisis management for the last few years.”sourcing director, FMCG company
The pandemic disrupted supply chains and caused unavailability and price increases in most industries. The geopolitical situation and strong inflation in Europe have only strengthened this. In addition, there is a lack of talented labour, increasing regulation, and ESG requirements that the procurement function needs to handle.
Basic procurement activities are taking more time due to inflation-related price negotiations, the need for alternative suppliers, logistics issues, and work related to regulations such as GDPR (Schrems II) or upcoming changes in IFRS (companies need to start reporting scope 3 GHG emissions). This added workload has often taken time and focus away from developing the procurement processes.
However, the role of procurement is more relevant than ever to companies and is getting more interest in the corner offices as well. This puts more pressure on procurement organisations to improve their reporting and data. There was a consensus amongst participants that there is a massive opportunity to gain concrete business value from developing the procurement processes with the help of technology.
Develop a vision for digital procurement
To be successful in digital procurement, it is essential to identify the concrete business value that the function produces, create a vision, and get management buy-in for it. Too often, procurement is measured only with achieved cost savings. A modern procurement vision should include, for example, the following goals:
Speed and throughput of the whole supply chain affecting customer and supplier relationships
ESG goals: creating traceability, transparency, and impact
Better decision-making with data
Developing partnerships with coherent data
Employee motivation: minimising (automating) waste and focusing on value-adding work
Improved profitability - not only unit-level cost savings
Process and outcomes first, technology second
Too often, digital development is seen as an investment in purchasing systems. Instead of a system or tool-driven approach, digitalisation should be approached by understanding process bottlenecks and opportunities and how related improvements should reflect in the enterprise architecture.
Let’s take an example of the onboarding process for a new supplier, which is a typical process bottleneck. Managing the onboarding process is essential for many procurement processes: How we steer the budget towards the right suppliers, classify the suppliers, check that contracts can be found, and more. The example below illustrates related systems, data flows and - yes - often manual work that could be automated.
Supplier onboarding process
This example illustrates that to achieve a high degree of automation, you must develop the architecture and API layer outside the procurement systems and use automation technologies.
In the example, you could automatically check if there is a supplier with the same id# existing in the financial system (or ERP), contract management system, P2P system or RfX system when a new invoice arrives and re-route the information about the new supplier to the right person in procurement for review based on the G/L accounts used and the cost centre of the person that made the order.
A modern architecture consists of different layers where you combine ‘best of the breed’ services with the existing core system and develop a competitive advantage. Companies may not always be in a position where they can replace many of their systems or have integration architecture that would make the changing from a specific software easy and cost-effective. Usually, procurement processes are heavily connected and use the same supplier master data in the background. Creating easy-to-use custom fronts or user interfaces (UI) for specific use cases or user groups can bring significant value to the organisation and the discipline of the processes.
For the best-of-breed approach to be optimal for companies, they need modern integration architecture instead of a pile of point-to-point integrations between systems.
We mapped an example architecture of how this could look from the perspective of procurement:
Procurement architecture example
It’s unrealistic to assume that a single monolith system could support the processes optimally or that an established global company should move everything from its core ERP to a modern SaaS stack. This is why composable architecture design is needed.
There are numerous changes in the operating environment of procurement organizations and an increased need to find efficiencies from internal operations of companies related to the procurement processes. We concluded that the following steps should be taken to build modern digital procurement:
Create a clear vision about the role and business impact of procurement function and get management buy-in for that.
Map the current procurement process and sub-processes with their bottlenecks and opportunities for improvement.
Develop KPIs and accurate data: starting from the supplier master data and extending to operational KPI´s and holistic understanding of the commitments, obligations and compliance of the whole contract base.
Design the target state enterprise architecture with end-to-end processes and all procurement stakeholders in mind. Changes in the system landscape can be done in small iterative steps solving the pain points with modern solutions and tailored fronts or UIs to hide the complexity from users.