Bastian Nominacher, Co-Founder and Co-CEO, Celonis
Where did this invoice come from? And why was an order placed with this supplier? With efficiency largely defining success, these are questions that any head of purchasing should not have to concern themselves with. Purchasing is a function that has historically been slow to join the digital revolution, prioritising cost-cutting rather than integrating with innovative technology to add value. However, steps are being taken, with the rise of Enterprise Resource Planning (ERP) solutions certainly making this facet of business more standardised and documented. What’s more, ProcureCon’sCPO Study 2017 reveals that procurement processes will be automated by an overwhelming majority (97%) of CPOs over the next 18 months.
Digital purchasing processes are being used more than ever before, which often means that much of the function is automated, from negotiating to settlement of invoices. This creates a significant volume of data, which provides the opportunity to interpret and learn from it to make improvements. Regardless of this data-led evolution, those responsible for the function are often surprised when they take a closer look at the individual processes involved. Confusion around purchasing should be avoidable as the processes always follow the same rules – or do they?
Staying on course
Realistically, established processes do not run according to specifications in many cases, deviating from how they were planned for several reasons. While this may initially appear to only have a marginal effect, this divergence from the norm can have a tremendous impact on a company’s efficiency. For example, if an order for materials is delayed and manufacturing comes to a standstill, customers will be waiting longer for their products.
In some cases, maverick buying nullifies negotiated special conditions, which at first glance, could be viewed as individual cases. However, when looking at the bigger picture it quickly becomes clear that the small losses incurred can quickly add up to a tremendous sum and possibly also represent a compliance risk. Making successful changes in purchasing comes down to having full visibility, particularly being aware of processes that do not conform to usual requirements.
Therefore, getting purchasing processes wrong can have a considerable impact on a company’s success. As a result, the potential for improvement is just as large, although these can only be made where there are tangible toe-holds. Making this happen requires one thing – transparency. Purchasing departments traditionally have sight of the delays to a process, but not the root cause.
An x-ray for all processes
To create more transparency around purchasing, businesses must make better use of the digital traces left by individual processes. By ‘mining’ digital footprints with the help of process mining technology, all deviations from defined procedures are made visible, zooming in to the document level to monitor each step for unauthorised variants. Given that purchasing is a department subject to increasingly stringent compliance restrictions, more so than logistics, IT or manufacturing functions, this transparency is particularly important. For example, representing processes in real-time and documenting them can help prepare purchasing teams for audits by identifying weak spots and setting the foundations for corresponding solutions.
Your virtual business consultant
As a rule, the more operations that are carried out, the greater the number of weak spots there will be. Although using technology to ‘mine’ these processes is the key to visibility across the purchasing team, there remains the significant challenge of interpreting the resulting findings correctly and pursuing the right path towards improvement. To address this challenge, the next quantum leap within data analytics combines artificial intelligence, machine learning and process mining to present potential and actual recommendations for action. These capabilities that correlate millions of process-related data points are invaluable to the modern enterprise, enabling them to test solutions with a human touch, but based on a fully automated evaluation.
As purchasing functions become increasingly global, full visibility all the way to the end of the supply chain is crucial for companies to stay abreast of broad operations networks. The intertwining of technology with purchasing had made this possible and it will be those organisations making best use of these digital processes permeating them that will be best placed for success in a data-dominated era.