4 Challenges of Transitioning from a Legacy Procurement System to Automation
Why do 70% of software implementations fail? Most organizations stay wrapped up in ‘extravagant benefits’ narrative, and ignore the challenges that come with software implementation. An all-in-one software will never address all department/process specific problems.
Let’s take the procurement team for example.
They’ve carefully selected an off-the-shelf automation solution recommended by industry experts. This new software is an enterprise-level product, that caters to all areas of the business and can scale well. But, the procurement team often complains that the new solution doesn’t quite work right all the time.
The result? They patch up the process gap with paperwork, email, and other manual workarounds. As shortcuts continue, the software loses its effectiveness.
It is not so easy to make sense of numerous problems that a department has with an all-in-one software. Often, a BPM automation tool is actually the best starting point to create your own procurement system built on efficiency.
Here are four ways that a BPM tool can tackle procurement hurdles that specialty software may not.
1. Automated PO Creation
Most purchasing activities are paper-driven. The procurement team may spend a lot of time identifying and sorting documents before routing them to the appropriate person or department. This is an essential step before the actual work starts.
Troubles such as inaccuracies and errors pop up when an approved purchase requisition is converted manually to a purchase order. This seemingly harmless task is not only cumbersome, but also drives up labor costs and delays the process considerably.
Automated PO creation is a key feature that the purchasing team will be looking for in an ideal solution. Rather than creating every PO from the ground up manually, this will automatically create a PO once a purchase requisition is approved. This way your team no longer has to authorize and manually key in every single purchase order.
2. Converting Purchase Requisition Lines
A purchase request need not be exclusively for a single item. It can comprise of one or more lines, and each line can have a different vendor, currency, or even legal entity. Depending on purchasing policies of an organization, separate purchase orders are created for each line.
While business practices vary, a few organizations resort to capturing only basic summary information on these separate purchase orders since the cost and error rate of manual data entry is very high. Some procurement teams try to manually convert line details such as item, unit price, quantity, and more with a team of data entry operators. Even so, the labor costs and backlogs hit an all time high.
If your technological solution doesn’t offer a better alternative to manual conversion of line items to purchase order, then it is of no use to your procurement team. Automated procurement solutions should create a separate purchase order for each line-item by retrieving the data more quickly and with great accuracy.
Once the purchase request with multiple line items obtains the final approval, the software should automatically trigger creation of as many purchase orders as the number of line items in the request. Automating data capture and conversion, will reduce costs and improve productivity of your procurement team—without adding staff.
3. Three-Way Matching
While purchase orders are created by your procurement team and sent to the seller, invoices are prepared by the vendor and delivered to the purchaser. The PO shows the vendor what items are expected to be delivered in what quantity and price by a specific date. The invoice is merely a reminder sent by the seller to the buyer to pay for the items that have been delivered.
Although one can’t work without the other, if these two documents don’t match with each other and the purchase requisition, it can spell trouble. Matching these documents manually can be a time-consuming task. Inefficiencies in this process can directly affect the cash flow and the bottom line of the organization.
A good procurement software should perform the three-way matching process automatically without any human intervention. As it does a thorough match between the three documents, any and all discrepancies are flagged by the software to be reviewed before the payment process is initiated.
As issues are brought to light quicker, there won’t be any bottlenecks or delays in the payment process. This will not only reduce processing costs and obtain early payment discounts, but it will also let your purchasing team spend more of their valuable time doing high-impact tasks than performing routine administrative tasks.
4. Vendor Management
Several organizations face issues in vendor management today due to the disjointed nature of software and manual processes. Since vendor management has too many stakeholders, the lack of visibility and siloed data can cause process gaps and make essential information fall through cracks in the documentation process.
When a buyer fails to properly vet his/her potential vendors, monitor their performance, and ensure security with proper documentation, it can result in compliance issues and jeopardize the business relationship with the supplier.
Also, since vendor management is not a single-step process, recognizing the importance of each stage (Qualifying, Engagement, Delivery Management, Payment Management, and Closure) and managing vendors throughout the entire lifecycle is vital to streamline the procurement process. But, all this cannot be done with just a normal spreadsheet.
If your new procurement solution performs the same task as a spreadsheet, it would be of no use to your purchasing team. A mere spreadsheet program could neither validate vendors nor rationalize existing supplier bases. Without a standard supplier database, multiple departments will be purchasing similar items from a large variety of vendors at different costs, producing chaos.
An automated vendor management system will provide a central repository of approved vendors, track vendor history, payment and delivery terms at a glance. With supplier management automation, procurement teams don’t have to scour through emails for confidential payment information or manually update supplier contact information.
An automated procurement system take the responsibility of collecting and maintaining accurate vendor information from your procurement team’s shoulder. Vendor self-service and digital portals make the vendor management process a breeze.
The future of work is automation and the procurement process is no different. Deloitte’s Global CPO Survey shows clearly that organizations are looking to automate their procurement process just to shift their team's responsibility from administrative work to strategic tasks.
Picking a procurement software for your business is not simple. It is a decision that should not be done lightly or taken on an impulse. There are so many technological solutions out there and each one offers its own slew of advantages and disadvantages.
Some might be better suited for startups and small business, while a few might be a perfect fit for enterprises, ultimately, everything boils down to your unique procurement process. While it might be hard to choose the perfect procurement system in the sea of automated products available today, keeping an eye out for these four essential parameters will make the decision a bit easy.
Can you think of any other procurement challenges that should be included in this list? If so, mention them in the comments below!