Digital procurement management
E-procurement: Just make shopping smarter
Guest Contribution by Ellen Förster*
providers on the matter
Less manual work and bureaucracy, but more efficiency, transparency and sustainability: What advantages does the digitalization of markets bring to companies and how it helps them better cope with current and future challenges.
Purchasing departments in companies around the world have big ambitions: According to the PwC study “Digital Procurement Survey 2022”, their digitization rate should be on average 72 percent by 2025. To achieve this goal , the companies want to invest around 1.3 million euros per year. Medium-sized companies in particular are planning to move towards the digitization of markets. The corresponding budgets have already increased by around 50 percent between 2020 and 2022.
Examining Germany in particular shows that appropriate measures and the transition to e-procurement are often necessary. The Federal Materials, Purchasing and Logistics Management Association e. V. (BME) found in a 2021 study that digitization in medium-sized procurement in Germany is lagging behind its potential. This could lead to real competitive disadvantages even in the short term. For example, many companies still use spreadsheet programs such as Excel to manage procurement data.
The frequent result: there is a lack of transparency and control both within the department and within the company. Details about prices and order volumes are not recorded centrally, so there are different layers of information. These problems are not limited to markets, as other areas such as accounting cannot be given access to consistent data. Last but not least, communication with suppliers is sub-optimal due to the lack of centralized procurement solutions.
Find the starting point for digitization
The good news: Such problems can be solved with targeted digitization measures. ERP systems like SAP S/4HANA, for example, create a link between procurement and other areas of the company. How are the budgets at the moment? Since the control can see the purchase data directly, it is easy to track the items. What is the stock of materials in the company? Are repeat orders required? Here again, uniform and centrally available data helps relevant departments to operate more efficiently and ensure seamless processes.
But where and how do medium-sized companies best start with the digitization of their markets? A good place to start is indirect procurement, such as the purchase of software, services and office equipment. Elements that do not flow directly into product creation, but are nonetheless important to operations. ERP systems often have built-in modules for this, but there are also dedicated procurement solutions such as SAP Ariba. Such applications facilitate the daily life of employees and automate important processes. Orders can not only be processed efficiently through the user interface, but the system is also able to independently validate predefined contribution limits. If the value of an order is higher, the software initiates a corresponding issuing process. The correct suppliers are already stored in the system, which ensures smooth processing of orders.
Use the capabilities of networks
In this way, medium-sized enterprises are already achieving a noticeable increase in efficiency in their purchases and laying the foundations for the digitization of direct procurement. In this case, it is advantageous to integrate B2B platforms such as SAP Business Network in addition to an ERP system or separate procurement solutions. This is how companies expand their supplier network – SAP Business Network alone is currently used by millions of companies from around the world. This makes it easier to compare prices and helps to act more effectively. In addition, companies make their entire supply chain more transparent and simpler this way: because receipts and documents such as quotes and invoices can be exchanged paperlessly and digitally between different companies. This point also shows why it is so valuable for as many companies as possible to digitize themselves and their supplies.
A convenient way to use ERP and procurement solutions is to purchase them through the cloud: Here, the provider usually takes care of handling the software and the corresponding server, as well as providing important updates and patches. This makes the cloud particularly attractive to small and medium-sized companies. Because you don’t have to worry about setting up and expanding a separate IT infrastructure, instead you’ll get new features automatically with the next release.
More resilience in a volatile world
At the same time, thanks to digital solutions and the associated simplified multisourcing, companies are becoming more flexible and resilient. An essential aspect in today’s volatile world: During the Covid-19 pandemic, international delivery problems have occurred and continue to occur. If policy in a country reacts to the growing number of infections with lockdowns and other restrictions, supply chains are quickly disrupted. If companies in other parts of the world are unable to switch to alternative suppliers, the risk of production disruptions and financial losses increases. The conflict in Ukraine is causing similar difficulties.
Especially under such critical aggregate conditions, undifferentiated supply chains and single sourcing exacerbate companies’ problems – especially when it comes to raw materials and other goods without which centralized operating or production processes cannot be maintained. Digital procurement solutions and B2B networks help diversify your own supply chain.
New technology for more sustainability
Digitization can not only make companies more efficient and crisis-resistant. The respective solutions are also advantageous from a sustainability point of view. Becoming more sustainable is a stated goal for many companies anyway. Due to the new legal framework, however, they must also increasingly actively pursue sustainable business models.
On January 1, 2023, for example, the Supply Chain Due Diligence Act (LkSG) will come into force, initially for companies with more than 3,000 employees and a year later also for those with more than 1,000 employees. The law obliges companies to document their compliance with human rights and environmental standards. They must also properly record deliveries – for example of raw materials and other goods – along the supply chain. This is where Cloud solutions like SAP Ariba Supplier Risk and SAP Fieldglass can be used, or a new feature in SAP Business Network that allows suppliers to perform a self-assessment and demonstrate their human rights due diligence. Such solutions make it possible to monitor suppliers and other parties along the supply chain, react to critical business partners and, consequently, improve sustainability along one’s own supply chain.
(Image: © Ingo Cordes )
In fact, the LkSG should also become relevant for companies that are not directly affected. Since it is mainly large companies that have to implement the regulations, they can request corresponding data from their smaller suppliers. Another reason for mid-sized companies to move forward with their digital transformation.
* Author Ellen Förster is Senior Vice President of SAP Intelligent Spend & Business Network, Central and Eastern Europe.