Digital Fueling Cost Reduction In Sourcing And Procurement: Srividya Kannan (Avaali Solutions Pvt. Ltd.)

The events of 2020 led to important introspections within enterprises concerning likely disruptions on supply chain and procurement and its consequent impact on the business. According to Gartner, “At the start of 2020, most boards’ priorities were focused on growth in some way, shape, or form. But as the pandemic tightened its grip on the global economy, priorities quickly shifted toward cost savings and continuity.”[1] Therefore sourcing and procurement functions are of increasing importance to enterprises to bring down costs and improve governance. Furthermore, digital technologies in procurement are fueling significant reductions in cost coupled with improved supplier engagement.

Cost optimization, operational resilience, and adapting to rapidly changing environments are key priorities for enterprises. Digitalization in the sourcing and procurement functions is now the top focus area for enterprises to bring down costs and improve visibility and governance. The procurement function is focusing on ways to engage with suppliers deeply, eliminate paper, reduce costs, have visibility to and risks, if any, on contract, and ensure a transparent and automated process.

Technologies like the Source to Pay Platform enables automation of various functional processes in the Source to Contract, Supplier Management, and Procure to Pay areas. Minimizing paper in the process and automating workflows for audit trails are key focus areas for enterprises. According to enterprises, process cycle time has been reduced by 35 percent to 50 percent, and procurement costs have been reduced by at least 10%.

The Accounts Payable process is ridden with documents and workflows, which presents a huge opportunity for automation. Invoices are typically received at various locations depending on the invoice type. They are checked manually for correctness versus Purchase Order, Line Item, Quantity, Price, Tax, etc., before they can be processed. Identification of exceptions and workflow approvals based on internal policies are typically manual. In several companies, the process is highly people-dependent and could present a long cycle time and potential errors in the process. Enterprises that process greater than 30,000 invoices per annum are increasingly adopting automation via packaged applications for AP. 

Solutions that enable e-sourcing, contract lifecycle management, and spend analytics in the Source to Contract areas are commonly adopted by companies to have a single version of the truth, track percentage spend, along with sustainable/diverse suppliers, provide a proactive risk assessment of supplier risk and ensure target percentage increase in preferred supplier utilization. 

Effective Supplier Information Management and Supplier Performance Management closely track supplier efficiency and reliability. With automation of Supplier Collaboration and Invoice Automation processes, enterprises are accelerating the cycle time of processes to enable a timely and cost-effective process with good governance and controls. 

One of India’s largest single-site refinery was acquired by international investors and an investment consortium. 

Post-acquisition, as a part of the transition into the new organization, detailed exercises on the existing processes were carried out, and opportunities around automation to improve the control and process efficiency were identified. A specialized cross-functional team was formed, with representatives from both the IT and financial departments. Accounts Payable (AP) was chosen as one of the major areas for digital transformation as part of the transformation journey because it featured several manual touchpoints.

The company went ahead and automated their entire process using OCR and package the application for the Invoice Automation solution. This resulted in a significant reduction in the turnaround time (TAT) of processing invoices, ensuring compliance checks and strong governance in the process, reducing errors, and consequently bringing down the overall cost of running the process. 

There are numerous tasks in the Source to Pay process that could be automated using Robotic Process Automation (RPA). Typical examples include supplier master creation, supplier rankings, purchase requisition creation, and workflows and reports. RPA adoption in procurement processes is seeing significant momentum. 

In summary, digital investments in procurement and sourcing functions increase focus to bring down the cost, improving governance and visibility. Procurement leaders are ensuring that processes are digitalized to the point where they can run on their own while spending more time building stronger supplier relationships, a broad base of suppliers to meet sudden demand spikes, reducing risks from factors like trade sanctions, and fueling innovation by working closely with businesses and delivering new operating models.

[1] Gartner, “Leadership Vision for 2021: Chief Procurement Officer”, Ryan Polk, Published 24 March 2021.