The New Wave of Procurement and Spend Management Technology
At Chicago-based manufacturer JBT, up to half of purchase orders require modifications before receipt, forcing procurement staff to manually handle large volumes of data. To address this challenge, companies are adopting supply chain collaboration tools like SourceDay to enable real-time communication on order changes. The COVID-19 pandemic highlighted the importance of supply chain risk management, driving the evolution of procurement technology from automation to intelligence. Experts predict that artificial intelligence and predictive analytics will lead the next phase of development, but data infrastructure remains a prerequisite.
At manufacturer JBT in Chicago, up to half of purchase orders issued by the procurement department require changes before goods are received. Buyers have to manually check thousands of rows of data in spreadsheets to update quantities or other parameters, and send new information to suppliers by phone, fax, or email.
To address this cumbersome process, Supply Chain Performance Manager Terri Decker adopted a tool that communicates order changes to suppliers in real time and confirms that suppliers have been informed of the revised orders.
"If there are no more changes, we just wait for the products to arrive," she said.
This tool, called SourceDay, is a supply chain collaboration product in the emerging wave of procurement technology that companies are using to manage spending. SourceDay CEO Tom Kieley said that during the COVID-19 shutdowns, one customer saved $35 million in lost revenue through automated purchase order management.
The pandemic also highlighted the need for supply chain risk management, driving demand for technology and visibility. Dun & Bradstreet found that 5 million businesses, including 938 of the Fortune 1000, have second-tier suppliers in the Wuhan, China region, where COVID-19 first emerged.
"Knowing your suppliers' suppliers is critical, but building a database that can be tracked through automation is still a highly manual process," said Bryan Fuller, Executive Director of CAPS Research.
Technology will get smarter
Procurement technology is evolving along a trajectory from automation to intelligence.
Historically, procurement processes were paper-based, relying on requests for quotes and purchase orders that required manual entry, review, and signatures. Over the past 15 years or so, companies have gradually adopted procurement technology to automate processes, reduce administrative costs, and move into the digital age.
Today, it is common to hand transactional processes to robotic process automation (RPA). Robots do not replace humans but use software to automate repetitive, transactional tasks, such as paying supplier invoices or replenishing inventory based on triggers like product shipment volumes.
When repetitive tasks are automated, procurement professionals can focus on high-impact decisions rather than managing purchase orders.
"Automation frees up our buyers to work on other things that help improve the supply chain," Decker said.
Time to "productivity maturity" for procurement technology
| 2 years or less | 2-5 years | 5-10 years | 10 years or more |
|---|---|---|---|
| Supplier e-invoicing | AI-based accounts payable invoice automation | B2B network intelligence | Autonomous procurement |
| Contract lifecycle management | Category management solutions | ||
| Procure-to-pay suites | Embedded analytics | ||
| RPA in procurement | Supplier risk management | ||
| Source-to-settle solutions | Tail-spend procurement |
Source: Gartner
Fuller said the next step is to use prescriptive analytics to understand contracts and spending and make recommendations.
Further out, technology will become even smarter.
"Artificial intelligence or predictive analytics are coming, which can tell you what to order and when based on learned signals, such as weather or consumption patterns, and can execute orders fully autonomously," Fuller said.
For some companies, the future is already here. Jacob Gorm Larsen, Head of Digital Procurement at Maersk, has hosted more than 10,000 e-auctions, a type of online reverse auction where buyers post needs and suppliers bid to win contracts. This process saves buyers from requesting quotes one by one and helps determine the best market price.
Auctions can include performance requirements, so they are not only about price. Some auctions use RPA to invite suppliers to participate without buyer input.
"It is a fully automated negotiation process," said Larsen, author of "The Practical Guide to E-Auctions for Procurement." "It is market-driven negotiation, and I believe most procurement categories can be successfully negotiated through auctions," Larsen said.
Maersk has also developed machine learning tools that automatically read and interpret contracts from more than 15,000 suppliers. "We can search for contracts with specific clauses and determine our level of compliance with that clause without reading each contract individually," Larsen said.
Data in, data out
Procurement departments must lay the groundwork before advancing technology. This is the classic "garbage in, garbage out" problem. Even if companies use ERP, data management systems may not be ready to support technology-driven procurement.
"If spend data is not organized, you cannot do spend analysis; if contracts are not organized, you cannot move to blockchain," Fuller said.
Today's tools require data to be structured by type so software can understand it. Gartner Senior Director Analyst Patrick Connaughton predicts that existing spend analysis software will be replaced by tools that use unstructured data to generate insights. This way, intelligent analytics tools can use data in any format for strategic guidance and spend analysis.
"If spend data is not organized, you cannot do spend analysis."
Bryan Fuller
Executive Director, CAPS Research
Tools such as strategic sourcing and procure-to-pay suites may evolve into more comprehensive solutions that incorporate corporate social responsibility and supplier diversity data from third parties.
To support this shift, Connaughton advocates for open API ecosystems that allow software to communicate in the background, giving procurement professionals all the information they need in a single system.
"This will become the platform for all core transactional data," he said in a recent webinar.
Procurement leaders face a choice: use a variety of best-of-breed solutions from different vendors or seek an all-in-one option. With best-of-breed, supplier information is scattered across numerous databases and programs.
Additionally, external factors must be considered—such as market intelligence, tariffs, labor issues, and the impact of the pandemic. Currently, building a holistic view of supplier relationships remains difficult, Fuller said.
The new face of procurement
In the future, corporate procurement will look more like Amazon and other consumer channels. Users may interact with automated chatbots to determine needed products and place orders. For certain products, Amazon-like catalogs will allow users to order from approved suppliers.
"Users can see price points and delivery dates and make quick decisions; this expectation has permeated the B2B world, where people want the same experience," said Matt Clark, President and COO of procurement automation platform Corcentric.
Procurement leaders recognize the need for technology-oriented roles
Procurement organizations are seeking data analytics professionals to manage vast amounts of data. Larsen at Maersk has added data scientists to his procurement team and will hire a PhD student in applied mathematics for a three-year collaboration.
"Ten years ago, data scientist was not a role we looked for in procurement. But you must have these skills to realize the potential opportunities that digitalization brings," he said.
Start the digital journey with small steps
The intelligent technology a company adopts will depend on the specific problems the procurement team wants to solve.
"They are asking how to use these technologies to solve specific outcomes," said Jim Bureau, CEO of Jaggaer.
It is better to start with small digital projects, such as adopting RPA in accounts payable or adding predictive analytics for inventory management, rather than overhauling the entire procurement department at once.
"You do not have to do it all at once; the savings from one step can fund the next step of the transformation," Clark said.
"Automation frees up our buyers to work on other things that help improve the supply chain."
Terri Decker
Supply Chain Performance Manager, JBT
Driving cultural change to embrace technology may be the biggest challenge. Successful companies view it as a new way of doing business, not as layering technology on top of existing practices.
"Many procurement functions mistakenly view digitalization as a project, but it is not a one-time effort," Larsen said. "Digital is a lifestyle, not a diet."
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