What role do IT and digitalization play in procurement?

Franck Lheureux is General Manager EMEA at Ivalua. The supply chain expert has supported the digital transformation programs of various Fortune 500 companies worldwide. © Ivalua

They are playing an increasingly important role for purchasing managers. Digitization not only helps to reduce costs, it also frees up capacity. Purchasing can focus more on strategic issues and create value in new areas. To name just a few examples: Digitization ensures greater transparency, easier comparison of complex offers, solid contract management, more in-depth analyses, better reporting. It also enables structured collaboration with suppliers and internal departments such as R&D or production. Purchasing thus becomes the central interface between the potential that suppliers bring to the table and the ideas and requirements that the various divisions develop with Purchasing. Companies that can use the potential of their suppliers for innovation and process optimization are not only faster on the market, they are also more competitive because they can offer product improvements and innovations more quickly. Finally, experience shows that suppliers can also contribute new business ideas.

How widespread is e-procurement and how should it be classified in a company (purchasing, supplier management, supply chain management)?

It depends on how you define e-procurement. If we mean operational procurement from quotation to invoice processing, more than two thirds of large and medium-sized companies already use software or a platform for this. If we extend the term to cover procurement as a whole, i.e. including supplier management and sourcing, then there are fewer. This is also due to the fact that in the past, end-to-end suites were not as powerful as they are today. However, because platforms such as Ivalua now exist that offer everything cloud-based and from a single source, more and more companies are leaving the best-of-breed path and looking for an integrated platform.

From what company size is the implementation of e-procurement worthwhile? Does a new ERP system have to be introduced?

As a rule, any company with an annual turnover of more than 500 million euros should achieve a considerable return on investment from an e-procurement investment. Such an investment makes a decisive contribution to remaining competitive. E-procurement systems offer many advantages: Cost savings, increased cash flow, easier compliance with regulations, process efficiency. They also improve relationships with suppliers and collaboration. But smaller companies can also benefit if they have a significant spend and many suppliers. You need to look closely at a company's spend profile. You don't need a new ERP system to make data from purchasing available to other areas and vice versa. Our cloud-based platform, for example, integrates with all major ERP solutions via ready-made connectors.

In your opinion, how far will automation in purchasing progress? What tasks will computers and intelligent software perform in purchasing in the future?

We will see a significant increase in automation in the coming years, and the human element in ordering and invoicing will decrease noticeably. Sourcing and contract processes will become even more automated. The significant progress in the functionalities of source-to-pay suites is fueling this trend. The integration of ever-improving artificial intelligence (AI) applications will be the biggest catalyst for future automation. Until now, AI for procurement processes has represented more hype than reality. But the technology will eventually mature to the point where we will see significant impact. AI will help us to almost completely automate order and invoice processing. It will guide users to the right products and even match paper invoices with contracts and orders. On the sourcing and contracting side, AI will help to identify opportunities. Compared to previous analyses, it will provide more solution-oriented insights in the sense of prescriptive analytics and even conclude contracts automatically. There are so many areas where AI will change procurement. Nevertheless, I don't see this as a cause for concern. Look at the sectors in Germany where the most robots are used - employment is highest there. Competitive advantages rarely lead to job losses. Ultimately, the automation of operational activities will help to take procurement to a new level, as more resources will be available for strategic and more attractive tasks.

In your experience, what makes a leading digital buyer or a leading purchasing department today?

I see the available information as the basis here: Only those who have a complete overview of all expenditure and expenditure categories, direct and indirect, can take well-founded strategic action and design processes more efficiently. This also includes sustainably maintained master data. It is also becoming increasingly important to have an organization that maintains an intensive exchange and a genuine partnership with suppliers. This also includes cross-departmental, flexible processes. In our experience, this is the biggest challenge. Most systems are too rigid and adaptations to new requirements take too long. However, if the purchasing department can configure changes itself, it becomes much more agile. Processes run faster and more stable. This also benefits the company as a whole.

Germany is the world export champion. From this point of view, how important is purchasing compared to sales in Germany?

One of the main reasons why Germany is able to compete with products from low-wage countries is the quality of innovative products, in addition to higher productivity. Purchasing makes a significant contribution to this - through the procurement of materials and parts that enable this high standard. Depending on the industry, it is responsible for 50 to 80 percent of external value creation.

Strategic purchasing therefore has a key function for the company's success, which is increasingly being recognized within the company. This is now also reflected in the development of salaries, which are catching up with sales. Purchasing is also becoming increasingly important as an interface to supplier companies with their innovations and ideas for products and production.

How is purchasing in Germany positioned compared to other countries? Is it competitive?

Based on my observations, I would say that purchasing departments in Germany examine new technologies more carefully before deciding on a solution. This rather risk-averse behavior was often very advantageous in the past. Given the current rapid advances in procurement technology and the fact that expectations of procurement are rising very quickly, managers need to be careful not to be too conservative. Waiting to see how global competitors adapt to the new procurement environment and utilize the latest technologies can lead to a loss of competitive advantage that is difficult to recoup.

What do you think about the market environment in Germany?

Competition is certainly tougher in Germany than in other countries because many people tend to favor a large solution provider. However, there is no objective reason for this. The decisive factors are market-leading functionalities in a truly integrated suite and practical innovations that actually create additional value. Artificial intelligence, for example, offers enormous potential for procurement and supply chains, but only if it is used correctly. Ivalua not only invests in the latest algorithms, but also in a solid foundation of high-quality data so that the algorithms can deliver useful results. In addition, Ivalua recognizes that while most processes are standard, some vary from company to company. This means we offer best practices in our software, but also configuration options so that the solution can be customized to meet these unique, changing requirements.

Ivalua recently acquired Directworks, a specialist for purchasing direct materials. How far along are you with the integration?

Most of the functionalities unique to Directworks have been integrated into our platform since the last release at the beginning of September, supplemented by our own innovations for direct materials. The remaining functionalities will be available in our next release of the platform, planned for November.

Rumor has it that you have reprogrammed the entire business logic of this solution in order to integrate it into your suite. Is this true and if so, why are you doing this?

Our approach to acquisitions is to acquire patents and expertise and then incorporate them into our own platform. That's exactly what we did with Directworks. One of the biggest advantages of Ivalua is a consistent program code and a common data model for the entire platform. Every implemented module is always fully aware of what has just been changed in other modules. The two company founders have anchored this high standard in Ivalua's DNA. Last but not least, our founder and Corporate CEO David Khuat-Duy wrote the first lines of program code himself.