The Market Speaks: The procurement practitioner’s digital challenges – Part 1 (Visibility)

We recently spoke with procurement solution providers to discover what their customers are asking of them. In a new series of investigations Spend Matters is speaking with representatives from the world of procurement tech practitioners and consultants to discover the word on the street about the challenges of ‘turning digital.’ What’s causing the low-scale uptake and preventing the elevation of the tech game?

According to a recent report we read on the state of procurement digitalization, released by CIPS in conjunction with IT digital marketplace Probrand, the majority of established organizations (from the survey) are still part way through their digital agenda, some are just starting the journey and few have finalized it (if digital transformation can ever be final) – in fact 82% have still to fully digitalize procurement processes.

Yet the recent Spend Matters co-authored Deloitte CPO study finds that “Nearly all CPOs understand the power of digitization, which is why digital transformation is the second most cited procurement strategy (behind supplier collaboration) and why 55% of Orchestrators of Value cite it as a “top 3” strategy (compared to just 36% of Followers).”

So it’s clear that organizations do see that manual systems seriously impact their ability to get value for money and make profit. Why then are so many finding it difficult to digitize their tasks and digitalize their processes?

Some cite budget constraints, some cite dealing with legacy systems, some cite getting senior management support, some simply don’t know where to start with a business case and others don’t know what systems to go for or what they actually need.

Example case – IT buying

The report states that even though IT is an organization’s biggest non-direct spend:

• Nearly half don’t have an IT catalog in place – no access to live data impacts ability to get value for money.
• One quarter of buyers are spending the equivalent of one day every week researching IT purchases.
• Two-thirds (63%) rely on manual systems as a primary method for placing POs.
• 58% aren’t using IT catalogs that are integrated into their ERP systems; the need to review printed catalogs was cited as their most time-consuming activity.

IT buying is just one category that could benefit from turning digital – and given that IT is at the core of digitalization, one of our first ports of call in this interview series was Probrand, IT marketplace and advisory service. We asked Ian Nethercot, head of supply chain:

What are the buyers’ asks, what are their challenges and how can they be addressed?

Ian has been in the space for more than 20 years. He explains that this year is the first time he has seen so many organizations really struggling to stay ahead of the game.

Price fluctuations, stock availability and approvals processes

“Prices are changing so quickly now,” he says, “that it’s increasingly hard to stay on top of them. The issue of pricing awareness and market visibility has always posed a problem for procurement, but none more so than in the IT industry. That’s because it’s the place where product innovation, development and releases experience the greatest movements. But industry experts have never seen the market as volatile as when we emerged from the pandemic. So our customers want visibility.

“We are all aware of how much prices have gone up, certainly in the last 6 to 12 months across everything in our own lives, but, from an IT perspective, there have been consistent price and currency fluctuations, and they all affect price.”

A close second to price instability comes stock availability as a big challenge for buyers.

“Unpredictability around stock availability has been off the scale for the past couple of years because there have been so many stock constraints. While we’re in much better shape than we were 12-18 months ago, there are still quite a number of areas where there are severe constraints, so stock is very much becoming king.

“When stock is on the shelves, it doesn’t tend to stay around for very long. Many organizations we talk to are really struggling to stay on top of that. One of the reasons they struggle is because many have quite lengthy purchase order processes, some take a long time just to generate a PO. They do the hard work; they speak to the supplier; they get the price they want; they’re happy with it – then they put it through their approval system, and that’s where the problem starts.

“Some of the approval processes I’ve seen are pretty horrific in terms of the length of time it takes owing to the number of tiers they have to go through to get things signed off. It’s taking time we haven’t got in a world of stock constraints. We see it happening all the time, by the time the PO is approved, the stock’s gone.”

PO approval software is one of the areas of tech that Spend Matters tracks. See our invoice-to-pay analysis here.

Those two issues are among the biggest challenges cited by customers, because they put a lot of drain on the procurement teams carrying out those tasks. Unsurprisingly they’re looking for ways to overcome that and drive more efficiency; it’s needless for buyers to spend so much time on, frankly, very basic jobs like constantly calling suppliers to check stock and pricing. This is time that could be used for doing much more strategic and meaningful tasks.

“I do believe,” says Ian, “that because of the volatility in the market right now, there are suppliers that are taking advantage of the situation and setting margins that are much higher than usual. They get away with that in certain categories because they know that it is very difficult for organizations to keep up with movements in price and availability.”

A third challenge is getting access to catalog pricing and knowing their entitlements in their sector.

“Clearly,” he says, “there are many frameworks, buying consortiums and so on, and there’s a very hidden world of all of these pre-approved discount structures in the market that many organizations really don’t have any idea about. So the big challenge is gaining access to all of the pricing catalogs that they’re eligible to buy through. That’s particularly significant in the public sector where they rely on their existing suppliers to be honest and inform them about the catalogs or frameworks they are allowed to buy through. Sadly, some suppliers will take advantage of that and make that additional margin for themselves.”

In part 2 Ian sheds some light on how we can conquer that opaqueness.