How to build a winning Digital Procurement strategy?
When we think of procurement, we basically think of negotiators trying to negotiate the best price for the company. It is that and more. Let’s see the best way to digitally transform procurement.
When we think of procurement, we basically think of negotiators trying to negotiate the best price for the company. It is that and more. The procurement world is broken down into two broad categories of spend.
Direct Spend: Direct Spend refers to anything that a company buys that goes directly into a finished good. If you are food company, this could be a raw material and if you are a tech company it could be a chip.
Indirect Spend: Indirect Spend refers to anything that a company buys that doesn’t go directly into a finished good. For example, tables and chairs, light bulbs, office rents, and others that are needed to keep the company humming.
Irrespective, of the type of spend there are a few use cases that are common across both these types of spend.
Note: Sourcing and Procure to Pay use cases are adjacent to the core procurement process and have not been covered in this write up.
Key Performance Indicators (KPIs)
The key performance indicators or KPIs include the following:
- Savings: This KPI is a measure of savings unlocked from applying these constructs to optimize the spend. These are typically savings from negotiating an upcoming contract. you group and categorize the consumers based on information available. The goal should be to “tier-up the consumers”
- Clawbacks: These are gains that come from either recouping money due to non-performance or optimizing the spend due to increased visibility. This KPI should be sparingly used or might have an unintended consequence of alienating the supplier base.
Digital Procurement can typically unlock 1–2% of savings in a base case and upto 4% on best case on your annual spend in terms of value creation.
Originally published at https://www.digitallymani.com on June 2, 2022.