Procurement is a big topic as it has massive significance in the business purchase decisions and processes that follow. Connecting to this, the advent of digitalization has transformed everything, including procurement. So, in this blog, we will dive into understanding what digital procurement is and what are the steps involved in it.
What is Procurement?
Whatever the industry is every business either manufactures or provides services and to do so, they need to purchase some raw materials or prerequisites. The businesses’ efforts and plans before purchasing the business requirements are termed as procurement. In simple words, procurement is the planning done before actually buying any materials for the business.
According to Investopedia “Procurement is an act of acquiring or purchasing goods or services, typically for business purposes.” The procurement process is one crucial step in the overall supply chain management process of any company. A successful procurement always involves a lot of planning.
Procurement is most frequently linked with enterprises because businesses must request services or make purchases of items frequently on a large scale. Further, procurement includes and engages all departments in order to know what exactly to introduce to the company and employees. To make it short, the success of your company’s finances depends heavily on its procurement strategy.
This certainly raises confusion in the form of question which is ” Is procurement and purchasing the same?” No, they aren’t! Procurement involves: What to do? How to make it? Types of materials available, suppliers’ availability and conditions, business requirement and budget, and deciding the price and quantity while purchasing is more into when to purchase, what to purchase, and payment. The connection is formed as procurement set standard, estimated budget and other guidelines for purchase and accordingly, the purchasing department carries out the dealing and negotiating acts with suppliers.
Let’s get it clear; “procurement and purchasing aren’t the same, but they do hold some connection.”
Importance of procurement
- It is important to your business operation plan and normally takes a sizable amount of resources to manage.
- Procurement helps to purchase reasonably priced products and services from reputable suppliers to establish a long-lasting business connection.
- In order to increase the organisation’s profitability, procurement strategies must be well thought out.
- The procurement function plays a crucial role in assisting value creation processes and operational support.
- Procurement involves implementing risk management and price shock mitigation and hence becomes a shield for business.
- A procurement process contributes to cost savings, enhances productivity, and lessens the chances of inefficiency in purchasing the right product for the company.
Since procurement is so important, a business must make sure that its procurement policy calls for the use of the proper goods or services in terms of quality and specification. Additionally, it describes the broad guidelines and norms that serve to direct the purchasing decision.
Some Key terms in Procurement
Let’s learn about the basic terms used in Procurement Process.
What is a procurement strategy?
A procurement strategy is a process of detailing how a business should handle its procurement process and provides a summary of all the phases that are required. In fact, procurement strategy serves as a roadmap for procurement activities. Further, the such strategy pays great attention to how well a corporation is operating.
An effective procurement plan is one in which the procurement manager is able to purchase high-quality supplies/materials at the lowest cost. This is accomplished through supplier sourcing, data analysis, and market research.
What is a procurement framework?
Definition-wise, a procurement framework is an agreement made with a supplier/ provider or range of suppliers. It enables businesses to place orders without running lengthy full tendering exercises.
A procurement strategy framework always focuses on choosing the right suppliers, products or services, methods and procedures that will be used during exchanges with suppliers. A standard procurement framework is always drafted in such a way that it serves to make a better business environment in the future.
What is procurement cycle?
The procurement cycle is the sequence of activities that make up the process of purchasing products. The procurement cycle is a crucial stage in the procedure. The procedures that purchasers should take during each procurement activity are described in the procurement cycle.
The procurement life cycle includes:
- Business need identification
- Approval for purchase
- RFX(any document to requesting for something) creation
- administrative tasks discussion
- Vendor evaluation and selection
- Make contact and payment
- Make implementation and delivery
Types of Procurement
There are basically 4 types of procurement. Let’s learn about them.
Direct Procurement
In direct procurement, it involves any goods, services or raw materials, machinery, and other components used during the production process. It can give an idea of what end product exactly to manufacture and sell.
Indirect Procurement
Here, goods and services are purchased to run a business and meet the operational needs of a business. This could involve furniture, marketing, and office equipment and supplies. In this procurement team, they will have Finance, IT, Recruitment, Marketing, etc. Companies like Software developers or website builders don’t need raw materials to use this kind of indirect procurement.
Private Procurement
Private procurement is carried out with regard to for-profit organisations. Within privately held businesses, there is private procurement.
Public Procurement
Public procurement is the process through which the government obtains inputs for essential public-sector consumption and investments. It is procurement that has been carried out within the framework of nonprofit organisations.
Public procurements are generally grouped into three categories:
- Works — buildings, highways
- Supplies — materials, textbooks, equipment, medicines
- Services – training, consultancy services
What is digital procurement?
Digital procurement is the application of emerging technologies which are into enabling a great sourcing strategy to become predictive while making transactional procurement to become automated and supplier risk management (SRM) to become strong. Digital procurement is also known as e-procurement. In fact, at the present time, digital procurement is the best practice in procurement industry. The major aspects included in e-procurement are e-sourcing, e-tendering, e-auctioning, e-ordering, and data analytics.
What is e-procurement software?
An eProcurement software is a specific program that offers an integrated and holistic approach to procurement management, which includes creating purchase orders.
A standard eProcurement software has the following qualities:
- They must have approval workflows to automate, configure and pre-approve tasks along with quick approvals to maintain transparency across all levels.
- They own cloud compatibility to streamline the end-to-end procurement process.
- They offer Three-Way Matching to eliminate the potential for fraud by cross-verifying purchase orders, invoices and goods receipts before payment issuance to vendors.
- Like every other software, digital procurement should have a customization option to only have or pay for the key feature that is mandatory.
Step by Step complete guide to Develop a digital procurement strategy
There are 9 simple steps to develop digital procurement strategies. These steps can actually guide your actions aligned in order to achieve desired goals. Let’s check out the steps.
Step 1: Identifying the business needs
This step includes the company drafting questions and getting answers such as: What are the stock items the business needs? Is restocking the need of the hour? Does the business require any outsourced services or manufacturers? By identifying your company’s needs, you can get an idea of which area needs automation. This step entails keeping lines of communication open with all of its departments to determine what each requires to do their duties effectively.
Step 2: Implement procurement software
A crucial element of any digital procurement strategy is procurement software. Therefore, you need to choose the best procurement software that will enable you to handle the complete vendor purchase process. This program not only aids in managing contractors and suppliers, but it also helps in monitoring spending caps, saves time, keeps track of all expenditures, and lowers costs incurred by manual bookkeeping.
Step 3: Determine organisation expense
Building an effective digital procurement strategy in 2022 may be hard as the expenses have gotten up. Here, you must check on how much you can spend on digital services, who are the top vendors, the amount of percentage of the total to be spent and ways to improve your spending with these vendors.
Step 4: Study and evaluate market conditions
You must have a clear understanding of what’s happening in your industry as well as the global market. To understand the market, you can conduct a competitive analysis to identify what are the aspects you need to work on for improvement.
Step 5: Set SMART goals
Forming a SMART (specific, measurable, attainable, realistic, and time-bound) goal is the first step of a successful digital procurement strategy. These goals can help you identify goals that you want your organisation to achieve through the use of digital platforms. These objectives can be: improving customer satisfaction, reducing costs, making it easier for suppliers to do business, and making it easy to submit bids or proposals via an online portal or system.
Step 6: Define Procurement Policies
You must draft a procurement policy which is a guide for allocating your spending and help you achieve the best possible value from your vendors and suppliers. Your procurement policy can be long-term and short-term objectives.
Step 7: Establish Procurement Systems
You must set up procurement systems to help you manage your supply chain more efficiently. These systems include: Purchase order management-electronically (e-POs) or manual. When you opt for a great e-PO system, you can track every purchase order from start to finish.
Step 8: Formulate a purchasing strategy
Now, it is time to know how much to purchase. Always know how many of each item you’ll need over the course of a year if you frequently buy in bulk. A company should also think about whether it should have one supplier or several and whether it needs its suppliers to be domestic or foreign. Using an auction site like eBay or Amazon Marketplace is another great option for choosing suppliers.
Step 9: Create a digital procurement strategy
An effective digital procurement strategy can leverage the power of technology to help you take advantage of digital tools. These tools can streamline processes, increase efficiency, and reduce costs. You can also check the key aspects to consider when developing your digital procurement strategy: establish goals and objectives and identify potential benefits of moving to a digital procurement environment.
After the digital procurement strategy is crafted and executed, you may want to consider having a thorough internal analysis and further using an internal social network or collaboration platform to communicate with your team.
Opportunities and threats of digital procurement
Talking about the opportunities, digital procurement provides you with many benefits to work and relish the best outcome for your business. Let’s look into such opportunities and benefits.
8 Benefits of digital procurement
Digital procurement benefits are numerous. Some of them are:
- It helps to enhance employee satisfaction as they say bye pen and paper and replace it with a customizable dashboard.
- E-procurement helps businesses to save money as it eliminates errors that might occur when handling manual orders or paperwork.
- It offers shorter purchasing cycles is that organisations can sustain consistent and cost-effective operations.
- It helps to eliminate tedious tasks as procurement software is used.
- It also helps streamline the operation to increase productivity.
- Digital procurement has forecasting tools needed to make a roadmap for fluctuating demand and it helps to drive better decision-making:
- It helps to make a business scalable as it grows rapidly and helps to own an enhanced supply chain management system for progress and success.
- Digital procurement makes the transfer of data and information more transparent to related organisations and suppliers.
All in all, because of the implementation of digital procurement, you can track and measure your growth and hence work accordingly to achieve your business goals faster.
The threats in digital procurements actually are the challenges that a business can face when drafting or implementing a digital procurement strategy. Let’s discuss 5 major challenges in digital procurement.
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Understanding what digital procurement means to your business
As there are numerous digital procurement tools available, you must be sure to use the one which helps your businesses to meet goals. Thus, you must research and gain the right knowledge to use the perfect procurement.
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Harnessing Big Data
Managing large amounts of data is another big challenge. Thus, investing in a good procurement tool is essential because if the security issue isn’t taken care of, then you can lose data or your data get leaked.
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Optimising new IT and communication systems
Strategic planning has a lot of potential with emerging technologies. You need to find the best procedure for internal and external networks, digital signatures and verifications, digital quotations, risk evaluations, and financial analyses.
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Finding the right skillsets to support your digital transformation
Spending effort and money on the best procurement tool systems is useless if you lack the skills to make the most of them. As a result, you will need supply chain specialists that possess the new skill sets needed for digital transformation and procurement. This hence make you have a hard time on finding the right candidate for the very work of supply chain management.
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Catching up with AI
It is important not to undervalue how AI will affect supply chain efficiency and profitability. Businesses may need to use chatbots to speed up the sourcing process and incorporate IoT. The cost of deploying the most recent AI technology can be high. So, this can be quite a challenge for a business who are into implementing a digital procurement strategy.
How to Automate Your Digital Procurement Strategy in 2022?
It is obvious that automation tools have a lot to offer in the online procurement process. These digital procurement tools are analytics-driven cloud platforms. Furthermore, new ones continue to emerge because of the continuous advancement in the digital world. Using any procurement tool, you can integrate data from different parts of your business.
All in all, as a business, you must research well and create a digital procurement strategy or get consulting for digital procurement specialist/company to meet your business needs. The option of getting a consultation from a company that provides you with suitable and profitable digital procurement planning appears more promising.
Why choose NSW IT Support as your Digital Procurement Support Company in Australia?
NSW IT Support is not just a digital marketing company in Australia or another IT Support company; we are also involved in providing businesses with procurement services. We offer both hardware and software procurement.
Under hardware procurement services, NSW IT SUPPORT offers an e-commerce platform to offer Australian SMEs, Corporate houses, and Government agencies an exhilarating online shopping experience.
NSW IT SUPPORT is a great company for Software Procurement Service in NSW, Australia. Here, we offer you managed services, including software investment, keeping track of your portfolio and choosing a cost-saving approach. Adding to that, under our consulting service, we define the roadmap and evaluate the maturity of your software procurement.
Contact us if you are in search of a company that helps you in offering services on digital procurement in Australia.
