How Does Procurement Impact Supply Chain Management?

Oct 10, 2022 | Impact of procurement

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Oct 10, 20224 min read

By utilizing advanced procurement technologies, organizations can streamline their processes, reduce the risk of human error, and make data-driven decisions. Additionally, organizations can improve supplier relationships, increase transparency, and reduce the risk of supply chain disruptions by utilizing these technologies.

Procurement plays a vital role in managing the supply chain of an organization. It is the process of purchasing goods or services, and involves identifying suppliers, negotiating for the best prices, and managing the supply chain from start to finish. By ensuring that the procurement process is efficient, organizations can reduce costs and increase efficiency, leading to improved customer service and higher profits. 

Understanding the Role of Procurement in Supply Chain Management 

The procurement process is essential for ensuring that organizations are able to access the materials and services necessary to carry out their operations. The procurement team must ensure that all materials and services are acquired at competitive prices, of acceptable quality, and that they are delivered on time. 

From a supply chain perspective, procurement is responsible for managing all aspects of the supply chain from supplier selection to delivery. This includes selecting the best suppliers for a given product or service, negotiating for competitive pricing, monitoring supplier performance, and managing the logistics of the supply chain. Procurement teams must also ensure that all relevant laws, regulations, and policies are adhered to during the procurement process. 

In addition, procurement teams must be able to identify and mitigate any potential risks associated with the supply chain. This includes assessing the financial stability of suppliers, understanding the environmental impact of the supply chain, and ensuring that the supply chain is secure and compliant with all applicable laws and regulations. By taking these steps, procurement teams can help to ensure that the supply chain is efficient and cost-effective. 

The Impact of Automation on Procurement in Supply Chain Management 

Automation has revolutionized the way organizations manage their procurement process. Automated systems enable organizations to quickly identify reliable suppliers, negotiate competitive pricing, and track orders in real-time. Furthermore, automation tools can be used to analyze supplier performance data to identify areas for improvement, leading to increased efficiency in the procurement process. 

Automation also helps to reduce the risk of human error in the procurement process. By automating manual processes, organizations can ensure that orders are placed accurately and on time. Automation also helps to reduce the amount of paperwork associated with procurement, allowing organizations to streamline their processes and reduce costs.  

FactWise improves efficiency by 20% via automation by enabling users to create best-in-class RfX in under a minute, auto-create and auto-process POs and invoices, track supplier performance via analytics, and offering smart dashboards and notifications that eradicate a need to depend on email, phone calls and Excel. 

Exploring the Benefits of Procurement in Supply Chain Management 

By effectively managing their procurement process, organizations can gain numerous benefits. A streamlined procurement process can lead to lower costs, improved customer service, better supplier relationships, and higher profits. Furthermore, efficient procurement can help organizations meet their sustainability goals by reducing waste and improving resource management. FactWise empowers organizations to unlock tremendous savings potential and reduce costs on direct spend by up to 25%.  

In addition, procurement can help organizations reduce their risk exposure. By carefully selecting suppliers and negotiating contracts, organizations can ensure that they are not exposed to unnecessary risks. This can help organizations avoid costly delays and disruptions in their supply chain. Furthermore, procurement can help organizations ensure that they are compliant with relevant regulations and standards. 

Innovating Procurement Practices for Supply Chain Management 

Procurement teams should strive to innovate their processes in order to remain competitive. This includes utilizing new technologies such as artificial intelligence (AI) and blockchain technology to further streamline the procurement process. Additionally, organizations should explore new methods of engaging with suppliers such as reverse auctions and electronic tendering processes. 

Organizations should also consider the use of predictive analytics to better anticipate future demand and optimize their supply chain. This can help to reduce costs and improve efficiency by allowing organizations to better plan for future needs. FactWise Source-to-Pay offers a range of prescriptive and predictive analytics to help organizations be more strategic and fact-driven in their procurement processes. Additionally, organizations should look into developing strategic partnerships with suppliers to ensure a reliable and cost-effective supply chain. 

Integrating Procurement into the Supply Chain Management Process 

To ensure that procurement plays a central role in supply chain management, organizations should integrate procurement into their strategies. This involves developing a strategy that aligns procurement with the organization’s overall objectives. Furthermore, organizations should consider developing dedicated teams that are responsible for managing the procurement process. 

Procurement is an essential part of supply chain management. By understanding its role in the process and developing strategies for efficient procurement, organizations can reduce costs and improve efficiency throughout their supply chain. Utilizing automation tools and innovating procurement practices can further ensure that organizations remain competitive in today’s market. 

Organizations should also consider the use of analytics to gain insights into their procurement process. By analyzing data from the procurement process, organizations can identify areas of improvement and develop strategies to optimize their procurement practices. To optimize procurement organizations, FactWise offers a wide range of analytics into RfX, supplier performance, inventory status, and team performance. Additionally, organizations should ensure that their procurement teams are well-trained and have access to the latest technology and tools to ensure that they are able to effectively manage the procurement process. 

A survey by the Institute for Supply Management (ISM) found that the average total cost of procurement as a percentage of revenue for organizations is approximately 11%. This means that for every $100 in revenue, an organization is likely to spend approximately $11 on procurement-related activities such as purchasing goods and services. 

Accenture's study found that organizations that adopt advanced procurement technologies, such as e-sourcing and spend analysis tools, can reduce procurement costs by up to 10%. This is because these technologies automate and streamline procurement processes, reducing the time and resources required to manage procurement activities. With FactWise, organizations can increase their savings up to 25%.  

In the case study by Procurify, a large retail company was able to save 5% on its total procurement spend after implementing a procurement software solution. This is because the software streamlined the purchasing process, reducing manual effort and reducing the risk of errors and inefficiencies. 

In the case study by SAP Ariba, a leading chemical company was able to achieve a 20% reduction in procurement costs through the use of an e-procurement platform. This is because the platform automated the procurement process, reducing manual effort, increasing transparency, and allowing the company to negotiate better prices with suppliers. 

Gartner's report found that using procurement software can increase supplier collaboration by 30%, leading to better supplier performance and improved supply chain resilience. This is because procurement software provides a platform for real-time communication and collaboration between procurement teams and suppliers, improving the visibility and coordination of procurement activities. FactWise empowers teams to strengthen supplier relationships and supplier base via improved supplier management and increased supplier diversity. 

These examples show the impact that effective procurement and procurement technologies can have on the supply chain and the bottom line. By automating and streamlining procurement processes, organizations can reduce costs, improve supplier performance, and increase supply chain efficiency. 

In conclusion, procurement plays a critical role in supply chain management by ensuring that organizations have the necessary resources when and where they are needed. By optimizing procurement processes and adopting best practices and technologies like FactWise that are focused on analytics and automation, organizations can reduce costs, improve supplier performance, and increase supply chain efficiency. The statistics and case studies mentioned earlier demonstrate the significant impact that effective procurement can have on the bottom line, making it a vital component of any successful supply chain strategy. 

About the Author

Stawan is the founder and CEO of FactWise. Before founding FactWise, Stawan was the NA TMT-Procurement Leader at McKinsey. Passionate about procurement, Stawan has 15 years’ experience in enabling clients of all sizes to achieve business impact via procurement.


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