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A short article by Saad Alshehri, Manager, Procurement Strategy and Business Enablement at TASNEE
It has been almost 3 years since COVID-19, when the global economy suffered and was impacted in a dramatic manner as no one was prepared for such a tragic global event.
There was a massive impact on the supply chain in different ways, closed borders, shipping disturbance, factories shootdowns, transportation limitations and many others. It was an economic nightmare, but worse, it was a quick economic shot in the backbone for those who were not ready, even though it was a walk-up call for rethinking the business.
Petrochemical supply chains can account for a staggering 40% of an organization’s costs. At product companies, up to 30% of net assets go toward inventory, plants, warehouses, and other supply chain assets. On top of that, moreover, the supply chain in general and procurement have been facing global challenges even before Covid19.
Procurement is one of the functions that is surrounded by risks associated with the firm’s bottom line. Thus, to keep your risks mitigated, procurement should be dynamic, responsible, and responsive. Firms have no option rather but to ensure the right procurement metrics linked to their strategic objective to face and overcome such challenges. One major driver that firms have already started looking at and strengthening is procurement digitalization.
Is that an easy job? Moving to more procurement digitalization takes time, effort, and dedication. Such a transition cannot happen overnight but committing to a digital procurement strategy can have significant payoffs not only to reduce risks and save money. It is crucial to streamline processes and improve bottlenecks, but once users determine the best plan to do that.
A procurement department of an automobile company in Japan surely has different goals than a similar department in a petrochemical company in Saudi Arabia. They are different, but all would agree that they want maturity to business sustainability and growth.
There is no such recipe to follow in adapting procurement digitization. Rather, procurement leaders, specialists and executives should find out with all stakeholders the best way based on their weaknesses to be strengthened first and second on their priorities. It’s vital to see where room for improvement exists and then use those areas as starting points.
Leaders can also consider more gradual investments in procurement technologies. Not all companies have the resources to put towards several upgrades at once. However, even choosing a few areas to target with tech could provide positive outcomes that encourage leaders to increase the resources devoted to the upgrades.
Digitalization allowed many procurement specialists recently to communicate with their suppliers effectively through the interactive ecosystem. It was a change to watch and manage to take place, but after that, those specialists got used to it and don’t want to return to their old practice of scheduling calls or returning to the old way of interacting. That alone has increased productivity and reduced procurement life cycle time, in our case, it reached up to 30% compared to the old way, especially in project procurement. Specialists’ productivity, in addition, was increased by sparing time to start looking for more value-added enhancements.
Furthermore, knowing that procurement is always surrounded by risks, digitalization as a data-driven approach helps in observing, defining, and mitigating risks from different diminutions. For instance, to get a closer look at the understanding of global sourcing, digitalization is helping us now to run an exercise of segmenting, more accurately, those suppliers based on the risk of materials they provide and the spending we have with them. That ultimately led to solving many WHAT’s and WHO’s in sourcing: what to prioritize, what to localize, who to strengthen our relationship with, etc.
Even if procurement got into some challenges, working on them, and keeping focused could bring the advantages mentioned here and other indirect advantages by having this level of visibility out of digitalization.
Gaining these benefits requires a concentrated effort with many new technologies. It must also engage several relevant parties, such as suppliers and the IT department, to explore the best ways to turn procurement into a touchless, more efficient, and sustainable procurement.
Saad Alshehri is a Manager, Procurement Strategy and Business Enablement at TASNEE. He is an industrial engineer expert and is interested in supply chain and procurement management.