Chief Procurement Officers (CPOs) are facing huge challenges when it comes to keeping up with the rapidly changing business landscape. In an age where technology and big data are more influential than ever, it is increasingly important to embrace change and harness the power of emerging technologies.
Simply put, legacy FMCG procurement systems cannot keep pace. Inefficient, outdated processes are costing companies considerably. Meanwhile, the automation of these processes, through ‘e-procurement’ and the digitalisation of the supply chain, will see entirely new levels of performance at every touchpoint of the procurement process. It is something that most CPOs are now fully on board with – Deloitte's most recent Global CPO survey found that 76% of CPOs see digital transformation as a top priority, up from 63% in 2019.
In this article, we will first delve into the challenges and problems that are faced by legacy FMCG procurement systems, before taking a look at how e-procurement will reshape the entire procurement process.
What is FMCG procurement?
FMCG refers to ‘fast moving goods and services.’ The term ‘procurement’ refers to the B2B process of businesses buying and selling goods and services. Procurement management is key for any business, particularly FMCG businesses, as it obtains all the essential items and services necessary for the business to run in an efficient, optimised way.
Procurement can be broken down into three key areas:
- Product selection – using a specific procurement platform or catalogue, companies choose products and services from a supplier’s range of products and send a purchase request.
- Placing orders – the supplier then confirms the request and processes it to become a purchase order, before preparing the products for delivery.
- Receipt of the invoice – the supplier issues the invoice. Once received and accepted, payment for the product or service is triggered.
What are the challenges facing legacy FMCG procurement?
Poor supply chain transparency
When it comes to mitigating risk, meeting regulation requirements, and accessing data efficiently, visibility across the supply chain is crucial. Yet, the lack of supply chain transparency is one of the biggest challenges to modern procurement.
Deloitte's Global CPO survey found that 65% of procurement leaders have limited or no visibility beyond their tier one suppliers. Aside from the effect on identifying and mitigating risks and compliance, this lack of supply chain transparency also has a huge impact on corporate social responsibility requirements, as procurement managers are left in the dark regarding the company’s practices.
What’s more, poor supply chain transparency also hinders innovation. The same survey by Deloitte shows that high-performing companies are 2.5 times more likely to have full supply chain transparency than their lesser-performing peers.
As an ongoing challenge for CPOs, supply risk has become increasingly difficult to get to grips with in the modern era. These risks can be either:
- External – including market changes, customer demand, social/economic factors, regulations, and product flow;
- Internal – including personal or management changes, environmental compliance, product quality, internal operations, and cybersecurity.
With increasing amounts of data to manage and more and more complexity involved with both external and internal supply risks, legacy FMCG procurement is struggling to keep up. Failure to make use of Big Data and analytics to better understand and mitigate risk is costing businesses.
Control of spending
This influx of data and the inability to make sense of it is also costing legacy procurement systems when it comes to spending control. A lack of purchasing cohesion means that accurate purchase budgets are extremely challenging. Meanwhile, purchases made outside the defined procurement process – known as dark purchasing, or rogue spending – just add to the overall lack of control and clarity. It is estimated that this kind of purchasing could account for up to 80% of total spending for some companies.
When it comes to achieving operational agility and total control of spending and budget, access to real-time data across the entire supply chain is essential. It is something that paper-based and spreadsheet procurement procedures are not able to provide.
As data becomes more pervasive and valuable than ever before, failure to harness it becomes increasingly impactful on businesses. Legacy procurement systems are struggling to cope with the sheer amounts of data now available, unable to innovate or even maintain accurate, precise data to make critical procurement decisions. A large part of the problem is human error.
It is estimated that the typical data entry error rate is 1%. While that might not seem a lot when you consider the sheer amount of data in use, even 1% has a significant impact. In fact, according to a study by respected research firm Gartner, inaccurate data is costing companies an average of €14 million per year, while around 60% of companies do not measure the annual cost of poor quality data.
Inaccurate, unreliable data leads to poor procurement decisions, poor inventory management, inefficient workflows, a lack of agility, and, above all, a huge impact on a company’s bottom line. In the age of automation, it is a clear missed opportunity.
Why digitalisation is the future of procurement
Switching to a digitalised e-procurement marketplace has been shown to have a huge impact on the bottom line it is estimated that while a legacy procurement transaction has an average cost of €95, a digital transaction costs less than €19. Full automation of the process drastically decreases labour costs, as well as overall efficiency through the entire purchasing chain.
Meanwhile, companies are free to allocate resources to other areas of the business, spending more time and resources on reaching out to new producers or cementing relationships with existing ones.
A streamlined, digitalised process brings new levels of efficiency and simplicity to procurement. Back-and-forth communication between buyer and supplier is cut, with every piece of information visible and accessible at all times.
Likewise, manual PO and invoice entry is replaced by an automated e-procurement solution, which might include any of the following:
- Automatic PO generation – templates and a well-designed PO workflow streamline the PO process
- Contract approval – all contracts are organised in a central location and accessible with just one click
- E-sourcing – potential suppliers are evaluated using precise analytical tools
- PunchOut catalogues – enables access to a range of pre-approved products from suppliers, with an automated order tracking system
These automated actions enable far more accuracy and much less risk, with a secure, seamless supply chain that enables business processes to flow smoothly.
Better cost control
As well as reducing costs, implementing a digital supply chain also helps to have better overall control of spending. This is because modern e-procurement systems are fully automated, with precise records of every transaction. They also open the door to innovative ways of regulating spending, with the ability to trigger special workflow routes in accordance with budgets.
With automated spending checks in place, companies can keep much tighter control of their finances, without any extra effort or cost.
More control over data and the process
The ability to collect and understand data, then use it to have better control over processes, is one of the key advantages of an e-procurement marketplace. CPOs are beginning to realise the full power of implementing a digital supply chain – according to Deloitte's Global CPO Survey 2021, 74.6% of CPOs believe that spending and saving performance analysis was the most valuable type of analytics.
Along with process performance analytics, supply market intelligence, supply risk analytics, and other predictive tools, e-procurement affords a level of control that was previously unthinkable. Analytics helps businesses integrate their strategy, with forecasting, supplier collaboration, risk management, and downstream supplier management for a highly effective competitive advantage.
In terms of the purchasing process, e-procurement gives companies total control, from beginning to end. An e-procurement system can stipulate:
- Who can input an order
- Who can approve or purchase it
- Who can pay for or receive products
- Which details of any given transaction are visible and to whom they are visible
How Shopery can help
If you are still relying on a legacy system to take your business forward, now is the time to invest in a digital supply chain that puts you in control of your spending, data, and processes, while freeing up valuable time to concentrate on other valuable aspects of your business.
As a leading digital transformation platform, we understand the profound impact of digitisation on the procurement process. Our SaaS solution is fully adaptive to your needs, giving you a deeper understanding of purchasing behaviour, greater agility, real-time cost control, and a far more streamlined and cost-effective workflow.
We have experience with the successful digitalisation of e-procurement processes and are ready to take your business to new performance levels, across every stage of your procurement process.
Find out how digitalising your procurement process could impact your business. Talk to an expert today!