Digital procurement is changing purchasing permanently and is shifting the procurement process in part to the departments in which the requirements arise. What influence does this digital transformation have on supplier management?
To remain competitive, companies need a reliable procurement system in addition to a good product and a successful brand strategy. Only with a well-coordinated and IT-supported supply chain process can companies cost-effectively meet the complex requirements of customers and the market and establish a successful purchasing strategy. An important prerequisite for this has always been good supplier relationships. In most cases, the personal relationships between buyers and suppliers have grown over many years. The procurement process then still takes place traditionally, for example by catalog, telephone and requisition and via the central purchasing department.
The barriers to the introduction of e-procurement
These aforementioned grown networks often represent a major obstacle to the conversion to a digital procurement process. Because in addition to the fear of possible high investment costs that such a digitization process entails, there are often also concerns that existing supplier relationships will be put at risk. But where does this fear come from?
The switch from analog to digital goes hand in hand with the introduction of an e-procurement platform. First of all, this leads to a simplification of the entire ordering process. As in a conventional online store, the relevant goods can be searched for across all suppliers via an easy-to-use user interface and ordered quickly and easily. This means that the system can be used intuitively by employees in a wide range of company departments without the need for extensive instructions.
The fact that suppliers as valuable partners could disappear behind this user interface appears to be a justified objection if one takes the large B2B marketplaces as a starting point. After all, these actually act as suppliers themselves and offer the portfolio of consumer goods that they have put together. In this case, therefore, there is actually no longer a relationship between customer and supplier, but only between customer and platform. It is correspondingly difficult to procure specific items via the large suppliers or even to work with the supplier of choice.
The large online procurement marketplaces thus tend to be designed for short-lived business relationships. Because long-term business relationships and networks within which customers and suppliers work together successfully are not compatible with the business model of Amazon Business & Co. Yet every company that develops, produces and sells products is dependent on reliable partnerships. In a good network, the know-how of the partners contributes to the company’s own success – in some cases they are even the key to innovation.
This aspect becomes all the more important when you consider that procurement today is about much more than just materials. By outsourcing internal processes to third parties, functions such as IT, human resources, logistics or legal services are now also being purchased. The supplier base is therefore becoming ever broader and ultimately also strategically more relevant.
Respond to rapid changes
Today, companies that want to react quickly to changes in the market or on the consumer side need a solid supplier base that enables agile deployment of goods and services.
Modern e-procurement solutions offer clear advantages here, as they bundle the goods and services of the leading suppliers and, in the best case, also enable companies to integrate their own in-house catalogs. Here, the company configures its own individual catalog, which it also manages itself. In this way, specific items or services that are not covered by the range of products offered by the system partners already connected, such as those offered by smaller or even regional suppliers, can be brought together in a customer-specific catalog and made available to users for ordering. Some e-procurement providers also offer the option of bringing in their own suppliers, who can be included in the supplier pool after defined criteria have been checked.
So it is only by switching to digital procurement that supplier management becomes fit for the future. Platforms support the purchaser in checking and optimizing the supplier base and, of course, in maintaining an overview of orders and displaying availability and delivery capabilities. If required, the functionality can be extended to include other tools. In the future, smart analytics, predictive analytics or blockchain applications will contribute to even better transparency and greater autonomy of the purchasing process. Within such a self-learning system, the exchange of know-how reliably succeeds in both directions. As a result, the supplier is integrated into the purchasing strategy as an equal partner to a much greater extent than was previously conceivable.
If you want to remain innovative and successful in your business field, you not only have to network your production. They must also make their supplier management fit for the future by integrating their suppliers as strategic partners and thus strengthening their network. E-procurement makes an effective contribution to this. Here, too, it is important to select the right partner, because not every procurement platform allows companies to integrate their own suppliers.
Author: Christian Obeser, Head of Product Management at simple system
Efficient procurement rethought: From ROI to ROP (Return on Procurement) is Christian Obeser’s motto. As Head of Product Management at simple system, he supports companies in digitizing their supply chain processes. Christian Obeser has 20 years of professional experience in e-business and consulting for process optimization in indirect procurement.