Digitalization in procurement and supply chain have been moving into position for years, and when the global pandemic emerged, the need for cloud procurement solutions accelerated exponentially.
Due to the demand and supply shocks during the pandemic and broken supply chains, companies worldwide are now looking towards procurement solutions to build resilience into their supply chain networks, drive cost savings, and mitigate risk.
How Pandemic has changed the way Companies and Procurement Teams Work
The pandemic forced businesses to change the way they operate. Businesses have sustained and even grown through the pandemic by embracing digitalization. The change caused by the pandemic is not temporary. Instead, it has changed the way of work forever.
Pandemic has introduced the hybrid-work model, office work and remote work, and the utterly remote model. These models bring increased productivity and a competent, diverse workforce. 95% of businesses reported disruption of their strategic sourcing and supply chains during the pandemic. That brought procurement into the spotlight more than ever.
Procurement leaders are now working towards modern procurement strategies through cloud procurement solutions to enable collaboration, increase resilience, and reduce risk. Procurement in a post-pandemic world is more than just buying for your business. Here are the three most significant changes in procurement brought by the pandemic:
1. Exposed underlying risks of global supply chain networks
For decades, procurement teams optimized supply chains for the lowest possible costs by sourcing supplies from countries with low labor and manufacturing costs, particularly China. The pandemic and recent trade disagreements between China and the U.S revealed the underlying risks of such optimization.
Broken supply chain networks during the pandemic have caused procurement leaders to change procurement functions to build a more resilient supply chain. Coupa’s cloud-based software has become a necessity in the sourcing and procurement space, go here to see their source to pay solution.
2. Precision Spending Due to Added Financial Pressure
Global economic slowdown following the global pandemic reduced the availability of funds. Procurement teams now look towards cloud procurement solutions to practice precise spending and help their companies sustain.
Conventional procurement practices are costly and useless in such circumstances where substitute suppliers must be identified, and operations must be managed on a tight budget.
3. The Human Factor
The pandemic has caused a shift towards a human-centric approach. Businesses prefer suppliers who commit to their internal customers and are people-focused. Suppliers who offer vital support structures to employees are now considered reliable as hybrid work models, and digital communications dominate company practices in the post-pandemic world.
Why Companies Started to Adopt Cloud Procurement Software
Six of every 10 executives said that the pandemic had led them to expedite digital transformation and adopt cloud procurement solutions.
Traditional procurement systems weren’t built to accommodate geographical separation, and the pandemic revealed this flaw for many companies. Cloud-based procurement solutions enable digital supplier management and real-time visibility into sourcing and procurement spending.
Businesses are adopting cloud procurement solutions to strengthen the supply networks and ensure business continuity through disastrous events such as the COVID-19 pandemic.
Significant reasons for cloud procurement adoption by businesses around the world during the pandemic are:
1. Remote Work
The forced social distancing due to COVID-19 fast-tracked the reimagining of the workplace that had already begun pre-pandemic. The switch to remote work changed how procurement operates and rendered the traditional procurement practices useless. Face-to-face interactions that were assumed granted by the conventional procurement practices suddenly became impossible.
This shift called for the digitalization of supplier processes and online collaboration between functions, which were always the advertised benefits of cloud procurement software. Therefore, businesses started automating their procurement processes to ensure sustainability and business continuity through the global pandemic.
2. Working Capital Management
The pandemic has disrupted the cash flows of all companies one way or another. Reduced demand has tied up cash in inventory already purchased. Similarly, customers and suppliers require flexibility, resulting in longer receivables and shorter payables.
The procurement function is highly influential in impacting working capital and cash through its involvement in accounts payable and in inventory management. The pandemic has transformed this procurement function digitally, companies must leverage cloud procurement solutions to optimize their working capital.
Cloud procurement can facilitate a consistent flow of accurate information between key stakeholders, maintain stakeholder confidence, and facilitate customers.
3. Supplier Risk Management
The pandemic has exposed vulnerabilities of supply chains all over the world. Most companies had a single-source supply chain, mostly depending on Asian countries for the production of raw materials.
The pandemic exposed the risk of such supply chains, and now companies are looking towards their procurement teams to rethink their supply chains.
Cloud procurement can play a significant role in mitigating the supplier risk by diversifying the supplier base, improving communication with suppliers, allowing transparency for quality control, and penalties for delays.
4. Increased Need for Cost Savings
83.5% of companies have experienced adverse effects during the global pandemic through reduced sales, broken supply chain networks, and altered work orders. Businesses look towards strategic cost reduction to survive the pandemic and ensure business continuity post-pandemic.
Cloud procurement solutions enable businesses to reduce costs quickly while ensuring growth in the long term. Spend analysis is a significant feature of cloud procurement which provides visibility of all company spending and identifies savings opportunities.
The ROI for cloud procurement solutions increased exceptionally for businesses of all sizes during the pandemic through cost savings, improved operational efficiency, and increased value-driven.
5. Improved Efficiency to Cut Down Cost
Improved order accuracy and effective inventory management, two key features of cloud procurement software, can exponentially improve the operational efficiency of businesses. Automating the procurement function can reduce order errors by up to 83% and invoicing errors by up to 37%.
Enhanced order processing efficiency saves 10 minutes per order of procurement man-hours spent on returns on average and cuts down the cost significantly.
As businesses need to reimagine their supply chain networks, they bear the risk of losing their competitive advantage.
The pandemic has forced enterprises to shift towards localization and further diversify their supply chain networks, increasing costs. Therefore, businesses need to improve operational efficiency and identify savings opportunities through cloud procurement solutions.
Mohammed Kafil is a certified procurement consultant who has been coaching companies to establish resilient digital procurement operating models for over a decade now. With Kissflow Procurement Cloud, a flexible procurement software that streamlines end-to-end procure-to-pay, and also eventually the vendor management process, Kafil helps medium and large enterprises with their digital transformation projects.