Study: Digitalization in Procurement Management
TEASER:
The digital revolution has reached the business world, and procurement management is no exception. The latest study by the Business Engineering Institute St. Gallen, “Digitalization in Procurement Management”, sheds light on how profoundly digitalization is changing this area. This blog post summarizes the key findings of the study to shed light on the opportunities and challenges that digital transformation brings for companies.
Introduction
The ongoing digitalization continues to have a transformative effect on the business world, which is still being accelerated by the emergence of disruptive technologies such as distributed ledger technology (DLT) and machine learning (ML). These technologies not only offer new opportunities to increase efficiency and reduce costs, but also to create innovative business models and improve customer interaction. Supply chain finance as a link between logistics, corporate finance and risk management is a specific set of solutions and services to accelerate the flow of money [1] between trading partners along the supply chain and thus offers an exciting interface between financial technology and innovations in the real economy.
Financial transactions are an elementary component in the procurement of goods
The starting point here is the physical transaction in procurement management, which is always matched by a financial transaction. The procurement process between suppliers and buyers can be divided into four levels of interaction. Figure 1 shows the main levels and processing areas in simplified form:
- Order processing: When a buyer orders goods, he sends an order (usually electronically using Electronic Data Interchange (EDI) or web services) to his supplier. The system then creates a sales order containing shipping information, invoice, and buyer data. It then checks whether the goods are available before the supplier fulfills the order.
- Dispatch processing: Delivery document and transport order are created. When the shipment leaves the supplier’s factory, a goods issue is generated in the ERP system and the sales order is updated with the shipment details. When the goods are handed over, the buyer compares the delivery bill with the order and creates a goods receipt document with the relevant order number.
- Invoice processing: The supplier prepares the invoice on the basis of the agreed terms and sends it to the buyer. The buyer checks the invoice and ensures that it is correct. A common method is the 3-way match between purchase order, goods receipt (or delivery document) and invoice. The buyer initiates the payment process, which involves either direct payment or compliance with the payment terms specified in the contract.
- Settlement of receivables: The parties involved record the receivables and liabilities in an accounting system, documenting or adjusting them with the aim of ensuring accurate reporting and the settlement of outstanding obligations.
Opportunities and challenges in procurement management
While ERP systems enable the IT-supported integration of these layers in a comprehensive application system and increasingly automate manual activities, there are still many challenges in cross-company collaboration. For example, there can be problems with effective communication between suppliers and buyers. Non-coordinated systems, data formats and the lack of common platforms make it difficult to exchange data and create real-time transparency. The flow of information is restricted, which can lead to misunderstandings, delays, and errors in collaboration. Many IT providers are dealing with these inter-organizational challenges in procurement management. The use of new technologies (e.g. DLT and artificial intelligence) should enable global transparency of relevant transaction data between suppliers and buyers in the future in order to reduce coordination effort, minimize risk and improve cross-company synchronization.
On this basis, the Business Engineering Institute St. Gallen conducted the study “Digitalization in Procurement Management” as part of the competence center “CC Ecosystems”. Conducted in summer 2023, it aims to provide decision-makers with in-depth insights into digital trends and guide them on their journey through the digital transformation in procurement management. With 22 practitioners from various industries in the DACH region, including automotive, consumer goods, chemicals, food and mechanical engineering, the study offers a broad perspective on digitalization in procurement management. Valuable insights into company activities and individual experiences were gained through interviews based on structured guidelines.
Results of the study
The most important findings and their implications for the selected industries and companies are examined in more detail below:
- Industry-specific differences and digital maturity: One of the key findings of the study is that the level of digital maturity (in five levels from low to high) varies considerably between the different industries. While some sectors, such as the automotive and chemical industries, are considered pioneers in digitalization and have already made considerable progress, others, such as food manufacturers, are more likely to be considered laggards in the area of information technology. This reflects the different priorities and resources available to different sectors and underlines the importance of adapting digital strategies to the specific needs and challenges of each industry.
- Process-related challenges and IT solutions: Another key aspect of the study is the process-related challenges in procurement management. The areas of order and invoice processing were examined in particular. Error detection and correction as well as the synchronization of data between buyers and suppliers were identified as key elements that often cause inefficient processes and costs. For decision-makers, this represents an opportunity to invest further in integrated systems in order to increase the reliability of processes.
- Requirements for future IT support: A key finding of the study is the growing importance of data transparency and consistency. In today’s fast-moving business world, real-time information is of crucial importance. This is where real-time dashboards and analytics come into play. These tools enable companies to access up-to-date data and make informed decisions. Automated systems, artificial intelligence and machine learning can not only minimize errors, but also increase overall efficiency.
Conclusion
Digitalization in procurement management is a continuous, dynamic process that requires a cross-industry perspective. Companies must carefully adapt their digitalization strategies to meet the unique requirements of their industry and take full advantage of the benefits of digital transformation. Investing in digital solutions not only offers efficiency gains, but also new business opportunities.
It was emphasized that digitalization in procurement management goes far beyond technological aspects. In a world where everything is constantly changing and evolving, attracting, and retaining highly qualified and talented professionals is crucial. It is up to each individual company to recognize these opportunities and set the course for a successful digital transformation.
Sources:
[1] Kuhn/Hellingrath (2002): Supply Chain Management
[2] Hofmann, Erik; Strewe, Urs Magnus & Bosia, Nicola (2017): Supply Chain Finance and Blockchain Technology: The Case of Reverse Securitization.
Study Link: “Digitalization in Procurement Management”
