Procurement functions are often burdened with manual tasks, challenging datasets, and complex systems that impact efficiency and stifle strategic decision-making. This is why industry leaders are now turning to procurement technology like GenAI in hopes of automating 50-80% of their procurement processes. While procurement automation promises significant benefits such as increased efficiency, cost savings, and improved compliance, it's crucial to address the quality of existing processes before implementing automation.

Procurement automation encompasses tools that can span the entire procure-to-pay process. Ranging in complexity from basic task automation, such as data entry, to more sophisticated applications, like spend management and supplier risk forecasting. However, if automation is blindly applied to inefficient processes, procurement teams will execute flawed procedures faster, leading to more significant inefficiencies and errors. To avoid the false impression of increased productivity, procurement leaders must prioritize process improvement, data accuracy, stakeholder engagement, and employee training before implementing automation in procurement.

Understanding Procurement Automation

‍Procurement automation aims to minimize inefficiencies and reduce costs throughout the entire procurement funnel, from sourcing activities to contract fulfillment and payment. In the early days of automation, procurement teams used technology to augment or replace cumbersome manual functions such as data entry. Soon, other areas within the procurement cycle became candidates for digital transformation, using robotic process automation (RPA) to streamline repetitive, rule-based tasks like invoice generation or approval. Today, procurement teams are looking towards autonomous sourcing by implementing advanced technologies such as GenAI and Machine Learning. The evolution of technology throughout the procure-to-pay process presents unlimited opportunities for organizations to benefit.

Three Benefits of Automation in Procurement

Increased Efficiency

Speed is an essential element of procurement functions. Automation will streamline time-consuming, repetitive tasks such as order processing and invoice management. It will also allow for rapid data analysis for strategic decision-making and the agility to adapt to quickly changing market conditions.‍

Cost Savings

‍Automation allows for rapid comparison of prices from different vendors. Procurement teams can quickly and accurately compare vendor pricing without increased capacity. As an organization grows, the procurement function needs to scale. Automation enables procurement teams to increase capacity without increasing headcount.

Reduction of Manual Errors

Manual activities like data entry, invoice processing, and contract management are prone to human error. Automation can eliminate the chance of manual input errors, leading to more accurate data and fewer financial discrepancies. Adherence to compliance and regulatory policies through automated rules will also reduce the risk of fraud.

While these benefits significantly improve procurement functions, automation's upside may take more work to reach than some organizations realize. Automating a flawed or broken process doesn't fix it; it makes it worse faster. To avoid compounding existing integrity issues, teams should prioritize process improvement and reliable data before deploying procurement automation technology.  

The Dangers of Automating Bad Processes

In the procurement cycle, time is money. The purpose of automating procurement processes is to reduce time, which will lead to realized cost savings. However, the increased speed will only exacerbate existing issues if an organization fails to audit these processes before automation. 

Imagine a scenario where a purchase order generation process has an error, causing it to consistently order 10% more material than required. If this flawed process is automated, the company will have a stock surplus much faster than if the process were manual. This surplus ties up capital, increases storage costs, and potentially leads to waste if the excess stock becomes obsolete. While this is just one example, there are some common issues procurement teams should look out for when considering automation.

Three Issues That Arise from Flawed Procurement Processes

Inaccurate Data Handling

Unreliable data can result from data entry errors, duplicate records, or incomplete information. This then compromises other areas of procurement functions and can lead to more significant issues like inaccurate demand forecasting, inappropriate supplier selection, and misguided spend analysis. All of these will ultimately result in missed opportunities and flawed decision-making. 

Poor Supplier Performance

‍Automation can exacerbate issues arising from poor supplier performance in several ways. Suppose a company relies on an automated system to manage supplier relationships, but that system relies on inaccurate or incomplete performance data. In that case, it might fail to flag problems like delivery delays, quality issues, and compliance violations.

Compliance Risks

Automating a process that fails to meet regulatory requirements can create significant compliance risks, as errors and non-compliant practices can be replicated and amplified quickly. Automated systems must be designed and implemented to meet all necessary regulations, such as data privacy and ethical sourcing practices. 

Automating a bad process will only magnify its flaws and create more problems. Organizations should first prioritize underlying process issues before implementing automation. This strategic approach to automation focuses on process improvement and data quality, which then enables procurement teams to effectively leverage automation to optimize procurement operations, reduce costs, and minimize risks.

Identifying and Fixing Flawed Procurement Processes

Research from McKinsey indicates that many CPOs recognize data issues are holding back their digital initiatives to automate procurement processes. While procurement leaders understand that the effective use of data is fundamental to modernizing procurement functions, many are still grappling with how to ready their systems and processes for automation. To prepare for successful procurement automation and digital transformation, organizations must first identify and fix weaknesses within their existing systems.

Three Methods for Identifying Weakness in Procurement Processes

Process Audits

Process audits are systematic reviews of procurement processes to identify areas for improvement. System and process audits should look for bottlenecks, redundancies, process deviations, and areas of non-compliance. 

Stakeholder Feedback

‍Gathering feedback from those directly involved in procurement functions and processes is necessary. Collecting input from procurement team members, suppliers, and supported departments will help give insights into day-to-day challenges. 

Data Analysis and Performance Metrics‍

Analyze procurement data to identify trends, anomalies, or inefficiencies in performance metrics. This will help to identify weak points in existing processes and help to establish measurable targets for improvement in both pre and post-automation deployment.

Once the weaknesses have been identified, improvements should be made to compromised processes before implementation. This involves looking at all areas of the procurement function, like workflow management, data consistency, and policy adherence. 

Three Ways to Improve Procurement Processes Before Automation

Streamlining Workflows

Simplifying processes will help optimize procurement functions. This involves removing redundant or non-value-adding tasks and facilitating clear communication between different stakeholders involved in the procurement process, both internal and external.

Ensure Data Accuracy

As mentioned previously, good data is the foundation of procurement automation. Before implementation, procurement teams should correct errors and inconsistencies in their procurement data. Once the data is clean, data standardization and governance should be established to maintain its integrity. This includes establishing consistent input formats and definitions for data elements across processes and implementing policies and procedures to ensure quality throughout the procurement lifecycle. 

Establishing Clear and Consistent Policies

Beyond data, well-defined policies provide a framework for efficient and compliant procurement operations. Procurement leaders should define objectives, principles, and guidelines for procurement activities within their organization. By first establishing expectations and commitments, procurement teams will be able to further define needs like supplier selection criteria, approval processes, and contract management procedures. 

Procurement leaders can ensure efficient, compliant, and value-generating procurement operations by addressing workflows, data handling, and compliance before starting their automation journey. This is a proactive approach that will help ensure automation efforts enhance the procurement process rather than exacerbate existing problems.

Ensuring Quality in Automated Procurement Systems

Organizations can create solid building blocks for procurement automation by first addressing flawed systems and weak points in existing functions or processes. To maximize the benefits of procurement automation, teams must first ensure that the technology is coupled with well-designed, functional systems.

Three Ways to Ensure Quality in Automated Procurement Systems

Comprehensive Supplier Evaluation and Monitoring

‍Procurement teams should use data-driven supplier evaluation to ensure quality. One approach, suggested by McKinsey, is analyzing vast quantities of supplier data through the use of AI and Machine Learning. This will help procurement teams quickly evaluate performance metrics, compliance records, and market insights. This allows for more informed supplier selection and reduces the risk of partnering with unreliable or non-compliant suppliers.

Accurate Data Management and Validation

Data quality and management are critical to ensuring quality in automated procurement systems. This includes cleaning, categorizing, and standardizing data and integrating relevant internal and external data sources.

Adherence to Compliance and Risk Management Protocols

‍Automated procurement systems should be designed to enforce adherence to company policies and regulatory requirements. Transparency in procurement is essential for maintaining ethical sourcing practices and trust with suppliers or internal stakeholders.

Procurement automation is not a one-and-done implementation but rather an ongoing journey that requires monitoring, improvement, and adaptation to evolving business needs. Organizations will find it easier to scale and deliver results through automation by intentionally designing systems and applying best practices to ensure the highest quality in their procurement functions.  

Balancing Speed and Quality in Procurement Automation

While automation can bring significant efficiency gains, ensuring that quality is not compromised when pursuing speed is fundamental to success. While it is commonly understood that time is money within the procurement cycle, teams must be aware of balancing speed and quality in procurement processes.

Three Strategies to Balance Speed and Quality in Procurement

Incremental Automation/Phased Implementation

‍Start by identifying highly standardized, repetitive procurement processes that involve low complexity. These processes are often the most suitable candidates for initial automation efforts. As the procurement teams gain experience and confidence in the automated systems, the organization can gradually expand the scope of automation to other processes. Companies like Sanofi and Teva Pharmaceuticals adopted a phased implementation strategy for their automation efforts, focusing on specific use cases and gradually scaling their digital initiatives.

Continuous Monitoring and Improvement of Automated Processes

‍Establish clear metrics by defining key performance indicators (KPIs) to track the effectiveness of automated processes. These KPIs should measure efficiency improvements (e.g., reduced processing time, fewer errors) and quality aspects (e.g., compliance adherence, supplier performance). Continuously monitor the performance of automated processes against established KPIs. Be prepared to make adjustments based on the data gathered and user feedback. Taking an iterative approach ensures that automation remains balanced with business objectives while also maintaining high quality.

Invest in the Right Tools and Technology‍

Centralized procurement platforms, like Fairmarkit, leverage AI to help automate everyday operations, optimize decision-making, and drive strategic value. Choosing the right technology to accompany automation initiatives can exponentially increase results. For example, Materion sought to bring its nearly $10 million tail spend under management. Their team successfully optimized 6% of that spend, but when optimization efforts were combined with Fairmarkit, the company realized over 15% in additional savings. 

Balance is essential to ensure that while efficiency gains are made, the procurement process remains effective and delivers the desired outcomes. By balancing strategy and the appropriate technologies, organizations can successfully automate procurement processes while maintaining a strong focus on quality.

A Balanced Path to Procurement Automation Success

Procurement automation holds the significant potential to streamline processes, enhance evaluations, and reduce costs. However, the secret to unlocking these benefits lies in striking the correct balance between speed and quality. Rushing to automate procurement functions without first addressing underlying issues may lead to amplified errors and missed opportunities. By focusing on process improvement, data integrity, and thoughtful implementation strategies, organizations can create a solid foundation for successful procurement automation.

As procurement teams embark on their automation journey, prioritizing stakeholder collaboration, investing in robust tools, and adopting an iterative approach will ensure that automation enhances procurement processes rather than hindering them. The goal should not only be faster procurement but smarter, more resilient systems that adapt to evolving needs while balancing quality and compliance.

By embracing a balanced approach, companies can harness the power of automation to drive both efficiency and excellence in procurement operations.