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When should you consider digitalizing procurement? NOW!

August 18, 2021 by: Juuso Jankama

All digital tools can bring great value. There’s not a single business out there that isn’t dependent on at least one IT solution for running their business. If I was to guess what the most important solution is, I would say either email or excel, as they are incredibly versatile and even indispensable. So much so, that we don’t even consider them as IT or digital tools, they just are, like the sun and the moon. And that is the nature of evolution in general. We’re faced with new technologies that seem totally weird when new, but once we can fully grasp how to make the most of them, we soon find we can’t live without them.

Digitalizing procurement isn’t yet at the point where it’s seen as a crucial part of our business, in the same way as excel, email, or even ERP systems. Currently, only the largest corporations can afford to implement procurement systems. As procurement systems evolve and companies like AirFaas begin to offer competitively priced solutions that are accessible to SMEs, more and more businesses need to start thinking about the digitalization of their procurement.

There are a few basic things you should be thinking about when assessing the need to implement a new system. The first thing is to identify the types of procurement transactions that you need to manage repeatedly. Typical procurement transactions are request for quotations (RFQ’s), purchase orders (PO’s), order confirmations, nonconformities, and the creation of shipping documents. There may be others, but these would be the main ones. Also think about reporting – both daily operational reports you need to run, and weekly, monthly, and yearly reports you need to put together for planning and strategy. The next step is to determine their volumes: how many of each transaction type do you manage monthly, weekly, and daily? This gives you a good estimate of the total amount of procurement transactions your organization manages.

Now think about the way you process these transactions now. Which tools and systems do you use? How much time does it take per transaction? How much of that work is manual and repetitive – the type of work that doesn’t really add value but must be done? For example, do you need to type the same data into multiple systems many times? Also consider how much time you spend on these tasks: looking for drawings or other information in different places? Trying to trace back the last steps that have been completed per specific transaction, and ensuring you have the most up-to-date info. Trying to link subsequent transactions together, matching invoices to orders or nonconformities, and understanding who is responsible for what according to the associated contract. This gives you a good estimate of the total duration for completing a task, and an idea about how much of that time is value-adding and how much time is lost due to subpar tools and processes.

Now multiply the number of all different types of transactions with the time you waste on doing non-value-added activities. What is that number? If it’s just a few minutes per day, congratulations, your business is in ok shape, and digitalizing your procurement doesn’t really benefit from investing in systems. But if the number is tens of minutes per day, things are different. Just 20 minutes per day of unnecessary work is close to 7 hours per month, and more than two weeks of wasted work in a year! What could you achieve if you had two more weeks each year to work on more impactful tasks than trying to send large emails?

This simple exercise won’t take you more than 15 minutes to do. If the time you can save on an annual basis adds up to days or weeks of work, you should start thinking about how you can streamline the way you work. Digitalization will certainly help. It is important to remember that the win is not only in the amount of time you save. The real benefit comes from the things you can do with the time you save! The average manufacturing company spends 60% of its revenue on direct purchases. What if this time allowed you to manage that spend just 1% better? For a 50M€ revenue company, the benefit will be 500k€ per year. That’s a lot of money. Maybe the time to consider digitalizing your procurement is now?

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