by Emily Newton
Procurement is a vital but often unoptimized part of manufacturing. You must address your supplier relationships to shorten lead times and maximize profit margins as much as possible. That can be complicated, but procurement process automation can help.
Benefits of Procurement Process Automation
Procurement processes in many manufacturing facilities rely on repetitive, manual tasks, from invoicing to data entry to inventory management. However, those typically aren’t the kinds of workflows humans are good at or enjoy. As a result, they’re prone to inefficiency and error.
Employees lose 60 hours per month to easily automatable tasks like data entry. Automating these workflows would free these workers to focus on other, more engaging jobs while computers handle the repetitive parts more efficiently. On top of filling forms and reaching out faster, automation also reduces the chances of human error, minimizing losses from inaccurate orders or suboptimal pricing.
Procurement process automation can also help you find new ways to optimize costs, availability and timelines with your suppliers. Artificial intelligence (AI) can find connections in vast data sets humans may miss, producing helpful insights into where you can save. Similar systems can also help you adapt your procurement process to incoming supply chain disruptions.
Top Procurement Process Automation Strategies
Procurement process automation comes in many forms, so there’s no one-size-fits-all approach to implementing it. Each manufacturer has unique procurement needs, but here are some of the most helpful areas to implement automation in general.
1. Automated Supplier Risk Assessment
One of the most impactful ways to optimize procurement is to take another look at your suppliers. AI risk assessments can analyze various companies and compare them to your needs to highlight where some may introduce unnecessary supply chain risks.
Poor supplier selection can lead to issues ranging from excessive prices to cybersecurity risks, but 69% of organizations today lack the visibility to uncover these issues. AI is better at identifying risk factors than humans. A vendor management automation platform enables you to make informed decisions about which suppliers to buy from, even when information seems limited to human eyes.
2. RPA for Invoicing
Robotic process automation (RPA) is another helpful way to automate procurement processes. RPA typically doesn’t feature advanced intelligence like AI, but it can handle straightforward, repetitive tasks much faster than humans.
Invoicing is an ideal application for RPA. Manual processing is slow, so it often costs between $12 and $40 per invoice because of labor expenses. Automating it through RPA can take those costs below $4, as you won’t spend as much time on them and will produce fewer errors.
3. AI Spend Analysis
Spend analysis is another optimal use case for procurement process automation. AI tools can review your purchase history and analyze data across your organization to reveal how much you’re really spending on procurement. They can also compare these figures to industry benchmarks to find where and how you can improve.
Getting the complete picture of your finances is often more complex than it looks, as factors like software purchases, fees and error correction are easy to miss. However, because AI doesn’t get tired, bored or distracted, it can find and account for these issues more reliably. As a result, you can see areas to improve and adjust accordingly without needing a third-party audit.
4. Predictive Analytics for Demand Forecasting
You can use AI to get a better picture of upcoming demand shifts. Effective procurement requires fast adaptation to changing customer demands, so you must be able to see these changes in advance. That can be challenging with manual methods, but AI provides an answer.
Predictive analytics look at past trends to predict similar shifts in the future. You can use these insights to order more of some items or less of another to prevent surpluses and stock-outs.
5. NLP for Streamlined Communication
Natural language processing (NLP) is another type of AI ideal for procurement process automation. These tools recognize, process and produce text, and you can use them to communicate with suppliers more efficiently.
Bid packages can be 20-30-page documents, so typing them out takes a long time. NLP programs can automatically generate and customize templates to produce them faster. You can also use chatbots to provide 24/7 support to your clients or vendors, enabling continuous cooperation regardless of your staff availability.
6. Blockchain Transactions
Blockchain technology is a less common but still helpful way to automate procurement processes. Blockchains are digital ledgers spread across a distributed network of devices, and any records within them are transparent but unchangeable. That makes them optimal for tracking transactions, but smart contracts take them further.
Smart contracts are blockchain-based agreements that execute automatically once each side meets predetermined conditions. Using them to manage supplier transactions can automate record-keeping and payment, reducing time and the chances of human error.
7. IoT Inventory Management
Inventory management is another common pain point in procurement since doing it manually can lead to supply distortion and inaccurate orders. The Internet of Things (IoT) can help by automating record-keeping.
IoT devices send real-time updates about the items they track. Using IoT sensors to track inventory levels and send data to a warehouse management system (WMS) provides an accurate, up-to-the-minute view of your supply levels. Some businesses have achieved 80% improvements in inventory accuracy through this technology, enabling more relevant ordering practices.
How to Automate Procurement Processes Effectively
These seven use cases highlight some of the best ways to automate procurement processes, but automation is just a tool. Its efficacy depends on how you apply it, so there are some considerations to remember.
First, you must have a clear goal. Roughly one in five organizations don’t have a clear vision for automation, making it one of the most common barriers to the technology. You’ll save considerable time and money by setting objectives and relevant KPIs before finding an automation solution.
Once you have a clear goal in sight, you can decide which areas of implementation will yield the most significant improvements. Start by automating just one or two processes, beginning with the areas with the most room to grow. These will generate more significant ROIs, making it easier to scale from there.
Procurement process automation will also entail some disruption. Your employees’ roles will change, so you should prepare them for the shift. Keep all affected workers informed of these updates and train them thoroughly to manage their new responsibilities and workflows to enable a smoother transition.
Automation Is the Future of Procurement
Improvements in procurement ripple across the entire organization. Effective process automation can boost your productivity, minimize lead times, strengthen your supply chain and grow your profitability.
Automation will become more accessible and versatile as technology improves. It will become an industry standard as a result, so getting ahead of the trends and automating now will ensure you remain competitive in the future.
Emily Newton is the Editor-in-Chief of Revolutionized Magazine. She has over six years experience covering stories in the manufacturing, logistics and construction industries.
