Procurement automation: 5 ways to improve your processes
Learn how to automate your procurement procedures, and discover the four most important processes that benefit from implementing procurement automation.
For many organizations, procurement is a time-intensive undertaking.
Even a relatively straightforward software purchase can take weeks to implement, due to:
- Multiple approval layers
- Vendor risk analysis protocols
- Contract negotiation conversations
When you have a complex procurement process, team members for whom a SaaS purchase is vital are left waiting. So, the faster you complete procurement, the sooner they’ll benefit from the new tool you bring on board.
Procurement automation is a powerful solution to such a problem, creating more efficient procurement processes by eliminating manual work, speeding up approval workflows, and maximizing collaboration.
As an equally important benefit, procurement automation helps improve purchasing compliance and reduces financial risk during the buying process.
Learn how to automate your procurement procedures and discover the four most important business operations that benefit from implementing procurement automation.
What is procurement process automation?
Procurement process automation is an initiative that uses automation to streamline buying operations, minimize risk, and take advantage of advanced technology to eliminate the need for tedious manual work.
Automation tells the software platform, “When X happens, do Y.”
For example, in the context of contract approval workflows, a simple automation rule would be, “When someone generates a contract, send it to the legal team for review.”
Without automation, this remains a manual and time-consuming process. The procurement team member who generated the contract must draft an email to the legal team, attach the contract document, and remember to follow up if they don’t receive a reply.
Automating workflows might seem as if it would save only relatively insignificant amounts of time, but all those small manual tasks add up. Most workers report saving around six hours a week when repetitive tasks are automated.
Procurement automation identifies which tasks can be taken care of by automation rules, assesses any risks involved in doing so, and then implements the automation recipe in your given software platform.
Why use procurement automation?
Create procurement efficiencies
The most apparent reason for using procurement automation is its inherent time savings.
Consider the example discussed above, where your company automates the contract approval workflow. Not only are you saving time on sending the contract over to the legal team, but you’re also benefiting from a faster workflow overall.
For instance, you can set another automation rule to remind the legal team to review the document if they haven’t approved it within three days.
Now, this process will happen without intervention. If the approval process remains manual, the procurement leader might take several more days to remember to follow up with their legal team, and so on.
Reduce manual errors
Automation eliminates manual errors that can occur during the procurement cycle.
Common examples of such errors include:
- Employees of the procurement department forgetting to follow processes accurately and sending contracts to the wrong people for approval
- Making simple data entry mistakes that can have huge consequences, such as adding an extra zero to a line item
- Procuring a new software system without checking with other departments to see if they already have one
Procurement automation ensures business processes are followed to the letter, helping you maintain compliance with internal regulations and reducing SaaS security risk.
You might, for example, build an automated checklist that requires procurement professionals to upload proof of having completed a GDPR (General Data Protection Regulation) compliance assessment before onboarding a new vendor.
Or, you may require all new software purchases be signed off by the CTO, using an automated approval workflow to ensure this happens every time.
Reduce approval bottlenecks
Getting proper authorization can be time-consuming, especially when multiple stakeholders must sign off on a new supplier relationship.
For example, you might set a rule in your procurement software platform to automatically route contract approval to another senior leader with decision-making authority if the first doesn’t sign off on the deal within a set timeframe.
How to automate your procurement processes
1. Map your existing procurement workflows
Start by analyzing the workflows you have in place and mapping them out using a flowchart document like this:
It’s essential to get as detailed as possible so you can parse out the actions thatyou can automate. This mapping may involve creating separate workflows for each step in a larger workflow.
For example, the above flowchart documents a company’s procurement process as a whole, whereas the one below digs deeper into the steps involved in creating an RFP (request for proposal).
2. Consider which tasks can reasonably be automated
Next, analyze which of the tasks involved in a given workflow you could automate in your procurement system.
Consider the above RFP workflow. “Select evaluation committee” is a task that requires human input and thus can’t be automated.
However, some components of “Draft RFP” can be. Your automation software may be able to take an RFP template and fill in the necessary vendor information, such as company name and contact details.
Map out which automation rules could assign procurement functions to an automation rule and which must stay manual by necessity.
3. Perform an analysis of automation risks
Just because you can automate a task doesn’t mean you should. Some elements of the contract management process, such as pricing approval, should remain manual.
In this stage, work through each of the tasks you’ve identified that could be automated and analyze any risks involved.
Perhaps you identified that you could automate your invoicing processing. This automation results in time and cost savings, but it comes with inherent risks, such as the possibility of accepting and paying fraudulent invoices.
Analyze the risk profile of each automation against the potential benefit involved, and decide whether the risks outweigh the gains (in which case you should keep the activity manual).
4. Choose the software you’ll use to automate procurement
Depending on your current software stack, you might need to implement a specific tool to manage procurement automation.
Most teams will use a dedicated procurement management platform that helps manage the entire process, from sourcing to payment to contract renewal. The best of these tools have procurement automation built right in.
Learn more about the options available, and choose the right tool for your needs in our guide: Procurement management software: Shaping the future of procurement.
5. Implement, test, and optimize
Now is the time to put your automation recipes into practice within your given platform.
A good approach is to break up the implementation of automation into chunks, where you roll out a limited number of new automation features and test that they work correctly before moving forward.
This will help you identify and squash any bugs and prevent data issues that might arise from setting up automation features incorrectly.
Four procurement processes you should automate
1. Purchase requisitions
A purchase requisition is a document your employees use internally to request a purchase. It outlines what they need to buy and from which vendor. It also discusses details like pricing and feature requirements.
Much information in a purchase requisition is filled in automatically (like vendor details), and the requisition approval process is also easy to automate.
2. Purchase orders
A purchase order form is an externally facing document, meaning it gets sent to your vendor as a formal acknowledgment of the goods or services you wish to procure.
The information in a purchase order is copied directly over from the purchase requisition form. You can set up an automated process that creates a purchase order form as soon as the requisition is approved.
3. Procurement approvals
The procurement approval process as a whole can be largely automated as well.
Rather than having to send emails or chase approvals with repeated phone calls manually, your procurement automation platform runs a sequence that looks like this:
- Procurement request created
- Head of procurement notified for approval
- Head of procurement approves request
- If the request is above a certain dollar value, request approval from C-suite
- Notification sent to CFO for approval
- CFO approves request
- Notification sent to the procurement team member that their request is approved
4. Invoice management
Many elements of invoice processing can be automated, particularly once you’ve established an ongoing relationship with a trusted vendor.
In most software agreements, for example, you receive the same invoice for the same amount each month. In this instance, automating the receipt, processing, payment, and storage of the invoice within a central repository is simple.
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