In a new series of investigations in partnership with Spend Matters, representatives from the procurement world of practitioners, tech solution providers and consultancies share the word on the street about ‘turning digital.’ What’s preventing the low-scale uptake and completion of elevating 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.
Learn how to align IT needs with priorities in Defining Value: A Guide to Buying IT Products.
If we believe that manual systems seriously impact an organization’s ability to get value for money and make profit, why 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 cite not knowing what systems to go for or what they actually need.
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Example case – IT buying
The report finds 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, our first port of call was Probrand, an IT marketplace and advisory service. We asked Ian Nethercot, head of supply chain:
What are you hearing from your customers, what are their asks, what are their challenges and how can they be addressed?
Ian has been in the space for 20 years. He explains how this 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 moreso 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. At Probrand we see it happening all the time, by the time the PO is approved, the stock’s gone.”
PO approval software in one of the areas of tech that Spend Matters tracks.
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 phoning around for supplies 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 catalogue 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 out there 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 catalogues 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 catalogues or frameworks they are allowed to buy through. Sadly, some suppliers will take advantage of that and make that additional margin for themselves.”
How do we solve the problem of opaqueness?
“How buyers become more efficient is quite simple,” says Ian. “The answer is digital.
“The type of tech that can help is a digital solution that gives a customer a direct data connection into authorized channels in terms of stock, pricing, discounts and entitlements, in a live environment. This instantly takes away all of the drain on buyers. The data is all in one place that acts as a price comparison engine.
“The best analogy is to look at what Go Compare does for car insurance. In our industry, we aggregate the IT authorized channel and bring it together in one price comparison table at a line item level. We do that for in excess of 300,000 IT products and services across the market. It's those kinds of systems that a customer needs in order to combat the problems of market opacity.”
The data situation
These types of systems solve other problems too. What Ian comes across every day is poor data management. “Many organizations don't record key pieces of data for their analysis,” he says. “For example, the part number of what they're buying, the quantity, the price, believe it or not, they actually don't record in most industries. But if they don’t record all of those pieces of data, how can they possibly truly analyze and benchmark their IT spend.” And that goes for all spend.
“I genuinely see, on a daily basis, purchase orders from big, reputable, well-known organizations with a dot in the field where the part number should be, because it’s quicker. They don’t know or can’t find the number, so they input: ‘as per quote, ABC 123,’ and they'll put a price as well. But when they go back in six months’ time, and look for what was bought, they'll have absolutely no idea because they don't know the part number or the description or even the supplier.
“In 95% of cases when we try to do spend analysis for organizations, they admit to not having the data, and that's because they don't record anything. It's actually quite rare to get a purchase order that has all of this information. But by digitizing and procuring through a platform, it does that for you, it gives you the SKU, the price, the quantity and obviously the supplier. This all means that typically you'll be able to do reporting from the system too.”
Barriers to digital uptake
Ian is constantly reminded that given that IT will always be one of the largest areas of indirect spend for any organization, most are far off the mark when it comes to managing their IT and tech spend.
“Since the pandemic we’ve observed that there is a desire and a demand for organizations to want to self-serve more and they have a passion to digitize more. It's becoming far higher on everyone's agenda. I think that's driven by the amount of remote working. So, I have seen a shift in terms of demand for these types of digital procurements. One of the drivers is that pre-pandemic, people often enjoyed picking up the phone to someone because they had been talking to them for a while. But that isn't the case anymore. People are more inclined to procure online, it's the consumerization of how things are done; we all buy online in our home lives, and that has played more into the workplace. So people want more tech to help them do their job better – but the big challenge is finding the right solution and knowing what solutions are out there.”
In our next article in this series, we will look into the various shifts in tech buying focus, and how a digital marketplace can help ‘un muddy’ the waters.
First published on https://spendmatters.com/
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