Evolution of Procurement - Are you a Procurement Dinosaur?

3000 B.C.

START OF PAPYRUS PROCUREMENT

The first traces of procurement can be seen throughout ancient history, including the Egyptians in 3,000 BC. Though there was no designated procurement function, materials management aided in the building of the pyramids. The Egyptians used scribes to manage the supply for these massive projects. Scribes played a clerical role, recording the amounts of materials and workers needed on papyrus rolls. These scribes tracked orders through fulfillment and were one of the first known in history to be in the procurement profession.

Papyrus roll

1983

START OF STRATEGIC SOURCING 

An article by Peter Kraljic on purchasing strategy marked the beginning of strategic sourcing and the Kraljic Matrix.

Peter Kraljic suggested that purchasing in many companies is based on routine, transactional activities that afford little strategic consideration to potential economic and political disruptions to materials supplies. His 2x2 matrix set out to provide companies with a way to distinguish between different types of purchasing strategies which maximized buying power while minimizing supply risks. It represented 'supply risk' (horizontal axis) and 'profit impact' (vertical axis) and offered four product classification

quadrants (Caniels and Gelderman, 2005).

1990s

START OF ERP & P2P BUZZWORDS

For more effective spend management, disparate functions of finance and procurement started working in tandem and thus evolved the buzzword P2P (procure-to-pay).

ERP stands for Enterprise Resource Planning; in simple terms, it helps organizations manage and integrate business process areas.

2000s

START OF EPROCUREMENT SOFTWARE SOLUTIONS

Technology became the solution to overcome the operational challenges and thus

emerged eProcurement software as an extension to already present ERP systems.

eProcurement (electronic procurement) refers to the process of purchase and sale of goods or services through electronic methods, primarily the internet. Many organizations had begun to re-evaluate their purchasing processes and identify new types of eProcurement tools that met their needs. The purchasing process essentially involved the following elements: Identify or anticipate material or service needs.

The key benefits for organizations using procurement software that still ring true today include ease of administration and potential long-term cost savings. Having a single interface for procurement related management information cuts down the time and effort required to monitor organizational spending. The use of such software also allows procurement managers to control the vendors used by the wider organization so all employees take advantage of negotiated rates and other terms of service.

With eProcurement, organizations can speed up the approval process by using electronic approvals. Gone are the days of printing out each purchase order and tracking down the right person to sign it — or waiting until that person returns from a business trip.

Below are a few challenges with eProcurement Software.   

    •  Configuration – the complex solutions are usually hard to modify and customize for the organizational needs

    •  Integration – not every service integrates with other systems

    •  Costs – the complex implementation which includes process planning, system testing, trainings, support, monthly licensing, IT maintenance and much          more may be higher than the budget expects   

    •  Errors – may occur due to technical issues or system bugs

2010s

START OF CLOUD BASED SOLUTIONS

Cloud based, custom P2P process for all sizes of organizations based on world’s best practices turned procurement into a strategic function.

Cloud based procurement software—delivered either through the Software as a Service (SaaS) or Platform as a Service (PaaS) model—managed the infrastructure, upgrades, security, etc., to meet a business’s requirements. A subscription to the software covered all maintenance and upgradation costs without requiring a separate investment.

Reasons for the growth of cloud based eProcurement solutions are that they are user friendly, have shorter update cycles, and get hassle-free updates. Hence, cloud solution providers are focusing to bring mature applications on the cloud.

Key drivers for the adoption of cloud applications are business need, friendly payment plans to start with, best return on investment (ROI) right from day one, and zero or low IT expenses in owning cloud applications. Other aspects to consider of cloud applications are modern look and feel, ease to customize as per requirement, and high availability. All these benefits give more time and focus on the actual business.

Rapid adoption of cloud imposes challenges to understanding the architecture of application, integrating with other applications—both on-premise and other SaaS applications—security, building and aligning the business processes towards business and IT goals of the organizations, keeping pace with changes in cloud applications, etc.

Present and near future

START OF PROCUREMENT BOTS

Procurement bots have a great place in the source-to-pay process for improving reliability, reducing cost to serve, and improving efficiency of the procurement processes. Bots will transform the future procurement organization structure and provide support to allow organizations to focus more on the strategic aspects of procurement.

Below are a few considerations when implementing Bots.

    •  Employee resistance and onboarding: Any changes that accompany implementation of a new technology can be stressful for employees as they might experience shifts in their responsibilities.

    •  Choosing the right processes: The automation capabilities provided by Bots are not ideal for task’s that are complex and could have variable outcomes.

    •  Setting realistic expectations: This is arguably one of the biggest obstacles when it comes to implementing a new technology such as RPA (Robotic Process Automation) or Bots.

    •  Tool limitation: Let us face it, Robotic Process Automation is still an emerging space and the tools do have their limitations that we discover as you get into the weeds of implementation.

We are at the tip of the iceberg. In the next several years, bots will become even more pervasive as organizations increasingly look to deploy them across the enterprise. That makes it even more critical to think through the operational details and impacts well before the bots hit the ground.

Are you a procurement dinosaur?

Can the activity you perform be mapped as repetitive?

Does the activity require a human judgment; can the rules on how to judge be defined to cover all possibilities?

Does the activity make you pull (and put) data from and into the same place every time (i.e., the same field name or the same location of the field on a particular screen of an IT system)?

If your answer is yes to any of the above, the activity can be potentially be performed by a procurement bot. It’s time to upskill yourself and start getting involved in more strategic work.

Don’t be a procurement dinosaur!

Watch a video with information about this topic here.

Karthik Rama, Procurement Doctor, has helped multiple organizations through their Procurement Transformational Journey for 12+ years in diversified industries and regions.