The Automatic Sourcing Process Steps in Procurement
- What is Automatic Sourcing?
- How can automation revolutionize sourcing team performance?
- Steps involved in sourcing
- Implementing automatic sourcing process
Procurement is changing from manual tasks to automated solutions. As businesses plan for a sustainable future after the pandemic, procurement leaders are turning to automation to improve efficiency and add strategic value.
Procurement used to depend on manual methods like spreadsheets and long email chains, slowing down operations and limiting strategic potential. Now, sourcing automation tools help teams move from reactive to proactive roles.
McKinsey & Company study highlights that nearly 56% of the source-to-pay process could be automated, potentially adding up to $70 million annually to the bottom line for businesses spending $2 billion each year.[1]
In this article, we will delve deeper into automated sourcing, explore its benefits, and discuss how your business can implement this transformative technology to achieve greater efficiency and cost-effectiveness in procurement operations.
What is Automatic Sourcing?
Automatic sourcing is a technologically driven approach to procurement that employs software and artificial intelligence to automate the sourcing and purchasing processes. This innovative method is designed to streamline suppliers' identification, evaluation, and engagement, reducing the time and effort traditionally required in procurement operations.
Traditional manual sourcing methods vs. automated sourcing
Aspect | Traditional Manual Sourcing | Automated Sourcing |
|---|---|---|
Speed | Slower due to manual tasks like data collection, supplier communication, and paperwork. | Much faster as processes like data collection, supplier interaction, and document handling are automated. |
Accuracy | Prone to human error in data entry, analysis, and reporting. | Higher accuracy with reduced errors due to automated data handling and analysis. |
Cost | Often higher operational costs due to intensive labor and time requirements. | Lower operational costs as automation reduces the need for extensive manual labor. |
Supplier Discovery | Time-consuming and potentially limited to known networks and existing relationships. | Quick and expansive, utilizing vast databases to find suppliers that match specific criteria beyond immediate networks. |
Scalability | Difficult to scale as increasing volume increases workload linearly. | Easily scalable, handling increased volume without a corresponding increase in effort or resources. |
Risk Management | Higher risk of oversight and compliance issues due to variability in manual processes. | Improved risk management through consistent rules and monitoring across all sourcing activities. |
Data Utilization | Data is often siloed and underutilized due to difficulties in aggregation and analysis. | Enhanced data utilization, with integrated analytics providing actionable insights and continuous improvement opportunities. |
Strategic Focus | Teams spend more time on administrative tasks, leaving less time for strategic analysis and decision-making. | Teams can focus on strategic decision-making and relationship management, as routine tasks are automated. |
Adaptability | Adapting to market changes can be slow due to the manual reconfiguration of processes and supplier relations. | High adaptability with systems quickly adjusting to new market conditions and automatically updating sourcing parameters as needed. |
How can automation revolutionize sourcing team performance?
Expanding visibility
Automation in sourcing improves transparency throughout the organization. Traditional procurement methods often lack visibility because they rely on manually updated spreadsheets and scattered email communication. This can hide the procurement cycle from stakeholders and increase the risk of errors and miscommunication.
Automation provides a full view of the procurement process. These systems offer real-time updates and dashboards that let stakeholders, suppliers, and business partners see the entire process as it happens. This visibility is crucial for reducing risks from human error and keeping everyone informed at each stage of the procurement cycle.
When procurement processes are transparent and easy to understand, other departments are more likely to work together effectively, ensuring that procurement strategies align with your business's broader goals.
Streamlining compliance and risk management
Automation improves compliance with regulations and reduces risk exposure.
For example, recent laws in Australia require businesses to report on their suppliers' labor practices, including those further down the supply chain. With automated sourcing systems, companies can build these compliance requirements directly into their supplier management processes, making compliance a fundamental part of the procurement workflow.
Automated systems have features that monitor and record compliance data across the entire supply chain. They can warn teams about potential compliance problems before they become serious, ensuring that businesses always stay within regulatory limits. This proactive approach to compliance will protect your business from legal penalties and increase your reputation for maintaining high ethical standards in your sourcing practices.
Streamlining Supplier Engagement and Management
Automation simplifies supplier relationship management by combining data and interactions in one central platform. This eliminates the need to manage multiple email threads and spreadsheets, making supplier onboarding and ongoing management much more efficient.
With a centralized automated system, procurement teams, stakeholders, and suppliers can access all the necessary information in one place.
Optimizing cost savings with advanced data insights
Automation changes how procurement leaders handle and analyze sourcing data, opening up new possibilities for cost reduction. By putting all the data in one place, automated systems let procurement professionals quickly track historical trends and find areas where they can save money, without the delays that come with manual data collection.
Advanced automation tools take this further by leveraging artificial intelligence (AI) and machine learning (ML) algorithms to provide deeper insights into sourcing data. These intelligent systems can analyze vast amounts of data from multiple sources, identifying patterns and anomalies that human analysts might miss.
For example, Ramp's Price Intelligence feature uses data from millions of transactions to provide insights on software pricing, helping companies ensure they are not overpaying. By uploading a contract, you can instantly compare prices and gain a detailed understanding of cost-per-user, which aids in more effective negotiations. This crowd-sourced, real-time data eliminates the need to rely on external networks for pricing information.
Automated systems can provide real-time visibility into key performance indicators (KPIs) such as spend by category, supplier performance, and contract compliance. This allows sourcing teams to make data-driven decisions and quickly adapt to changing market conditions.
Steps involved in sourcing
Step 1: Categorize and analyze the procurement needs
Begin by identifying the category of products or services required, considering the volume and types purchased, current pricing, and existing suppliers. Additionally, analyze the user demographics and departments that interact with these goods or services to fully understand their impact and usage within your organization.
Step 2: Analyze the supply market
Assess your company's buying power and the strategic importance of the category. This involves conducting a thorough market analysis to tailor your sourcing strategy appropriately.
Utilize tools like Kraljic’s Matrix to classify suppliers based on risk and impact on profitability, which helps in making informed decisions about supplier relationships and strategies.
Step 3: Formulate a strategic sourcing plan
This crucial step involves finding the best procurement method that reduces risks and costs. Assess current and potential suppliers to set goals and minimum requirements. To get a comprehensive view, involve people from different departments and roles, including key decision-makers.
Step 4: Initiate the sourcing process
Proceed to solicit bids from suppliers, typically through a Request for Proposal (RFP). This document should clearly outline the product or service specifications, requirements, pricing structure, and the legal and financial terms, ensuring that all potential vendors understand what is expected.
Step 5: Supplier selection and negotiation
After receiving responses to your RFP, shortlist potential suppliers for further evaluation. Conduct interviews to clarify details and gather additional information, which will aid in making the most informed decision. Assemble a knowledgeable team to engage with suppliers effectively during this phase.
Step 6: Implement and integrate solutions
Once suppliers are chosen, communicate clearly with them about their role in the implementation process. Ensure a tight collaboration, especially for complex products, by integrating suppliers into relevant meetings and discussions to keep them updated on any changes or developments.
Step 7: Performance benchmarking and monitoring
Do not overlook the importance of this final step. Start by benchmarking the initial status of the product or service, then continuously monitor and evaluate the supplier's performance to ensure objectives are being met. Promptly address any issues identified to minimize impact on your business operations.
Implementing automatic sourcing process
An automatic sourcing process can significantly streamline procurement operations, enhance efficiency, and create a more agile sourcing environment. Here are the key steps to effectively deploy this technology in your organization:
- Assessing organizational readiness
Before implementing an automatic sourcing solution, it's crucial to evaluate the current state of your procurement processes and infrastructure. Review existing workflows, technology use, and team skill levels to assess your organization's readiness to adopt new technologies. Identify any gaps that might hinder the integration of an automated system, such as outdated processes or a lack of technical skills among team members.
- Integration with existing systems
Integrating the new automated sourcing software with your organization’s IT infrastructure is essential. This step requires careful planning to ensure compatibility and minimal disruption to ongoing operations. Work closely with IT specialists to map out the integration process, focusing on data migration, system compatibility, and the configuration of the new software to align with your business processes.
- Change management and user adoption strategies
Change management is crucial for the successful adoption of any new technology. Develop a comprehensive change management plan that includes user training programs, ongoing support, and clear communication about the new system's benefits and changes. Encourage user adoption by involving key stakeholders in the planning process and providing them with the resources needed to adapt to and embrace the new automated sourcing tools.
- Selecting the right sourcing software
Choosing the appropriate automated sourcing software is critical to the success of this transition. Consider factors such as the software’s capability to integrate with your existing procurement systems, ease of use, scalability, and level of customer support. It's important to select a solution that not only fits your current needs but also can grow with your organization.
Studies show that automation can reduce procurement cycle times by up to 30%, increasing cost savings.
Advancements in AI and ML are making automated systems even smarter, enabling deeper data analysis and better decision-making. As these technologies evolve, they uncover new efficiencies and opportunities for cost savings.
Ramp's procurement solution can amplify the P2P benefits by streamlining the whole process, automating approval workflows, and providing full visibility into committed spend. Discover how Ramp can transform your procurement and compliance efficiency →
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