The digital transformation of Maintenance, Repair and Operations (MRO) procurement is well underway. The vast majority of organisations in our 2022 Indirect Procurement Report already use some form of eProcurement. So what’s next?
Digital procurement is a fact of life – eProcurement systems are not new. They are being used by the majority of UK MRO procurement teams, according to the findings of the 2022 Indirect Procurement Report, compiled jointly by RS and the Chartered Institute of Procurement and Supply (CIPS).
The need to improve operational efficiency and eliminate internal complexity are the key drivers of eProcurement adoption, the report shows, although 25% of the organisations surveyed said that retiring legacy systems had prompted their digital switch.
Among the benefits of adopting digital tools, a majority (70%) highlighted better spend visibility, followed by improved management information (59%), reduced order process costs (47%) and shorter time to order (46%). Two-fifths (39%) said that digital also helped them spot off-contract spend.
“It’s safe to say that tossing out the pen and paper and replacing it with a customisable dashboard and real-time alerts would make any procurement officer happy,” said one person surveyed for the RS/CIPS report.
The same person added: “Procurement software can automate many of the tedious processes employees have to slog through on a daily basis. Sure, a digital transformation may be costly, but the money saved after a successful integration should outweigh initial spending.”
PwC’s 2022 Digital Procurement Survey mirrors the findings of our report. It said 77% of companies were now equipped with source-to-pay digital solutions and procurement departments globally were setting ambitious digitalisation objectives for 2025.
Data – digital procurement’s secret weapon
After cost reduction, the PwC survey found that the second most important priority for digital procurement was to improve supplier relationship management. This was driven by the key benefit of digitalisation identified in the RS/CIPS report: better quality data.
“Poor data is still the number one barrier why even good procurement people struggle, for example, to drive compliance,” says Bernhard Raschke, Chief Transformation Officer at RS Group. “They just don’t have the data.”
It’s a view shared by respondents to the survey for the RS/CIPS report. “It is critical for procurement to adopt the latest technology that enables the team to visualise purchasing spend,” said one.
Another added: “Visibility features give users actionable insights into their procurement processes. Not only that, but forecasting tools can provide a roadmap for fluctuating demand and lay out possible paths to take for the greatest gains.
“Pivoting a business still awash with analogue record-keeping practices can be time-consuming, to say the least. But an operation that has fully adopted a digital transformation can make changes in the system that will immediately be distributed to all important areas,” they said.
PwC’s digital procurement survey identified the benefits for all employees of implementing digital systems that optimise processes and make them easier for end users.
“If you strengthen your procurement through digital analytics – combined with an agile operating model – and empower people on the frontline with the right tools, there are massive benefits to be had”Bernhard Raschke, Chief Transformation Officer, RS Group
“Empowerment of the end user is probably the biggest enabler going forward for indirect procurement,” says RS’ Raschke. Digital systems allow organisations to decentralise decisions by placing buyers with deep category expertise where the money is actually being spent.
“A more agile, hybrid model that is leveraging data can enable a self-service model for indirect supplies, which uses digital tools to apply procurement best practices,” he adds. “Instead of having a procurement expert building an RFP [request for proposal] process, essentially, you empower your end users to run a competitive sourcing process themselves.”
Raschke believes improvement in digital analytics is “a mission-critical enabler”. He adds: “If you strengthen your procurement through digital analytics – combined with an agile operating model – and empower people on the frontline with the right tools, there are massive benefits to be had,” he says.
The data generated by digital procurement solutions can identify ways to improve performance, pinpoint areas for innovation and collaboration, and identify risks with sufficient lead time to react, according to consultants Bain. “Data muscle is transforming the strategic role of procurement,” they add.
Putting theory into practice
That is fine, in theory, but how does it work in practice? A study by Deloitte explains how the data generated by digital procurement creates a virtuous circle of increasing visibility over the supply chain which helps you improve your procurement decisions.
For example, they show how software that manages procurement from sourcing to contract needs to hold constantly updated supplier prices and availability in order to function. This data then allows procurement teams to spot market trends before they impact the business.
“With improvements in data, analytics, computing power and visualisation, digital procurement also has better evidence-based options for decision making, which can improve both the value and accuracy of strategic decisions and the speed of execution,” the study says.
Although three-quarters of large firms already use some form of digital procurement tool, only 58% of small companies have taken the plunge into a digital world, according to the survey for the RS/CIPS report.
For those about to embark on a digital journey, PwC says it’s vital to source tools that fit your business. “It’s not only about saying ‘let’s digitalise procurement’, but when and what needs to be digitalised,” says Yoliana Bayona, Advisory Services Director at PwC Luxembourg, who carried out the analysis. “Different elements need to be assessed for the procurement digital strategy to be in line with the company’s objectives,” she adds.
Kate Davies, Global Head of Indirect Procurement at RS, says it’s also vital that procurement plays a central role in wider corporate digital projects like the implementation of ERP systems.
“Procurement needs to be a very key consideration if we're talking about ERP transformations,” she says. “Absolutely, it should be driving and have as much influence as finance, because procurement is what makes the difference between setting a target and being able to deliver the outcome.”
For procurement teams, digital tools can end the nightmare of massive tail spends by making all spending visible as it happens and preventing off-contract spend, says Helen Alder, Head of Knowledge and Learning Development at CIPS. Warranties and discounts can also be more easily enforced.
For engineers and production people, the benefits of digitalisation can be measured in downtime that’s either reduced or avoided altogether because essential parts are available when they are needed for planned maintenance.
“It’s essential that the procurement team identifies the needs of the maintenance engineering team, has a regular dialogue with them and continually involves them with the management of suppliers.”Emma Botfield, Managing Director for the UK & Ireland, RS
“It’s essential that the procurement team identifies the needs of the maintenance engineering team, has a regular dialogue with them and continually involves them with the management of suppliers,” says Emma Botfield, Managing Director for the UK & Ireland at RS.
“Allowing digital tools to take over the day-to-day transactional business of procurement also allows more time to work with suppliers, not just to track performance but also to explore what innovation and value-added services they can provide.”
As we’ve seen, the digital transition of procurement is well underway. As organisations reap the benefits in terms of improved efficiency, better supplier relationships, greater transparency and improved end-user experiences, further innovation will follow.
The old saying about not being able to manage what you can’t measure takes on a new angle as data analysis gives businesses fresh insights that will fuel innovation and new ways of working. Harnessed in the right way, this can unlock massive benefits.