Buying goods and services is an integral process for every organisation, but how much do business leaders know about the cost and opportunity of best practice procurement operations? Modern, cloud-based procurement can improve an organisation’s operating costs and efficiency, and can overcome challenges associated with cash flow and financial management.
Chris Clements, Director, Customer & Operations, KPMG, says in Australia adoption of procurement technology is at a relatively low level of maturity, and offers the biggest potential to enhance organisations over the next 2 to 5 years.
“With legacy systems not easy to use, and cloud-based vendors developing a wide range of applications which don’t need the same level of technical understanding to buy goods and services, procurement is entering a new paradigm with real business benefits,” Clements says.
“The biggest differentiator has been the introduction of cloud services. The features cloud procurement brings to organisations has changed the user experience, which is a big differentiator.”
The procurement user experience, Clements says, has historically been embedded inside Enterprise Resource Planning systems and in many cases is difficult to understand and use for both dedicated procurement system staff and business operators.
Without a central or common view of spending, or spend under management, real money can be wasted on redundant products and services.
New online marketplaces and trading platforms are also impacting procurement. According to Clements, there is growing demand for specific procurement systems with specialist features not found in a finance or ERP system, in addition to the ability to integrate with online marketplaces.
“Large marketplaces are more suitable for corporate clients; however, cloud-based systems are facilitating access to new marketplaces for both buyers and suppliers,” he says. “Unless you had a supplier arrangement in China you might not see the real costs, now you have more access to that. You still need due diligence, but cloud procurement is opening up a whole range of supply networks previously not available.”
John Christopoulos, Director, Technology Enablement, KPMG, says the cloud makes it easier for suppliers to connect with businesses, as new portals, open APIs and messaging standards streamline integration.
“Suppliers can make their platforms available to customers and partners for even more efficiency gains,” he says. “Business leaders are asking how to access a competitive market to get the best prices and put that into the procurement process. The sourcing that sits in front of the procurement process is just as important as procurement itself, and cloud systems can attain quotes from open markets more immediately.”
The entry of Amazon into the Australian market is opening up more cloud solutions which have built connectors into other marketplaces like Alibaba.
“The easiest way to buy something should also be the most compliant way,” Clements says. “We talk about maverick buying, or buying off contract, but if staff get the ease of use from catalogues, there is prudent vendor management, so spend is actively managed for better unit rates and contract compliance.”
Modern procurement offers more than a new way of working – it addresses a number of core business challenges.
Australian enterprises continue to grapple with manual processes for procurement, including pay cycles, raising requisitions, purchase order (PO) approvals and managing invoices from suppliers.
“There are lot of organisations with manual processes in the end-to-end procurement lifecycle,” Clements says. “This is labour intensive and the technology exists to put in dynamic workflows with delegation of authority. Procurement processes can become more automated, less cumbersome and the software can do automated matching.”
In a typical procurement process, when a requisition gets raised it needs to be approved in order to generate a PO. Once permission to buy is granted, the supplier then gets an invoice.
“This two and three-way ‘matching’ can be automated, which itself is not new, however cloud apps streamline the process and bring approvals to the field,” Clements says. “With mobile access, procurement managers and executives have full visibility over the procurement cycle wherever they are.
“Another process challenge is the ‘noise’ of low value procurement, whereby non-procurement staff overload the system with low-value transactions. Dedicated procurement applications allow transactional items to be bought within a specified budget, letting procurement staff focus on high-value goods and services. This changes the dynamic of procurement towards more value-added services and strategic decision-making.”
In addition to process improvement, a business case for dedicated procurement is security, including fraud prevention. In April this year Fortune reported on an elaborate procurement scam involving millions of dollars of fake supplier invoices sent to US tech companies including Facebook and Google.
“Fraud is still a problem with procurement and invoices can get paid by finance teams with no linkage from the approval at the front end to the goods being received,” Clements says. “Manual processes allow fraud to creep in, particularly when there is collusion between the supplier and the customer.”
Australian enterprises are realising the benefits of modern procurement and the return on investment (ROI) for procurement technology is generally positive over the life of a project. There is upfront capex and ongoing software subscriptions, but as procurement becomes more efficient there can easily be a five-fold ROI.
“Spend under management is generally the biggest factor,” Clements says. “If you have 40 percent of your spend under contract, with better processes you can get that to 80 or 90 percent so it can be big numbers.
“One state education department had an early procurement system which was 15 years old and heavily customised, creating more complexity in business than it solved. Part of our broader consulting work was to look at a new system.”
At one of the big four banks, KPMG performed a procurement process review advising them on better practice for when they go to market get acquire a new system.
“We help clients develop business cases for this new technology,” Clements says. “At a major Australian University, we were involved in developing a business case and selecting the right partner. Any review of a procurement organisation has to have a technology lens. We get involved with upstream work as part of a broader offering.”
Christopoulos says KPMG’s Tech Enablement team provides an integrated offering with years of process consulting behind it to make the project successful.
“We use a rapid implementation approach to cover the high value suppliers to get runs on the board and then bring on other categories to get the best time-to-value. In as quickly as 12 to 16 weeks clients can get value from the product.”
KPMG’s main partner for procurement software is Coupa with the landscape set to change as other technology partners are engaged for client outcomes. KPMG performs market scans for clients and the most fit-for-purpose technology will be recommended.
“Procurement should integrate with finance and we are seeing an increase in demand for integration with asset management systems, especially among utilities,” Christopoulos says. “Procurement systems come with connectors and you can build custom integration components with APIs. For example, once the shopping basket is approved the PO will be transferred to the supplier’s system with the two prime documents, the PO and the invoice, automatically managed for the customer.”
The more spending managers can see expenses go against a project, the more will be saved as stakeholders won’t buy things that are not needed.
“If you can’t expose the spending then you can’t manage it,” Christopoulos says.