A guide to procurement automation

Procurement automation involves using technology to streamline and enhance the procurement process to mitigate inefficiencies and reduce costs. Today’s businesses use automation platforms and tools across the procure-to-pay process, with varying degrees of complexity. Some may deploy process automation to spend less time on time-consuming manual processes like data entry. Others use automation alongside technologies like artificial intelligence (AI) and big data analytics for spend management and supplier risk forecasting, increasing resiliency across business processes.

Process automation in procurement, particularly when deployed in tandem with collaborative tools and platforms, can significantly improve the business-vendor relationship. According to the management consultancy McKinsey, companies with sophisticated supplier relationship management capabilities outperform their peers as much as two-to-one.¹

And as supply chains have become increasingly more complicated and potentially volatile, automation platforms have provided businesses with tools to adapt quickly to unforeseen events. Today’s automation platforms and dedicated dashboards can facilitate real-time visibility and insights, allowing for rapid response to supply chain challenges. These tools are also increasingly popular as a way to meet sustainability goals during the sourcing and purchasing process. 

Procurement teams historically manage vast amounts of data gleaned from both within and outside their organizations: Spending patterns, market insights, supplier data, external regulations and internal specifications, just to name a few. This has made procurement workflows particularly prone to human error and procurement tasks ripe for digital transformation.

Early procurement automation practices augmented or replaced manual data entry such as inputting information into spreadsheets. Procurement departments might also use robotic process automation (RPA) to automate a series of previously manual procurement tasks such as invoice generation and approval. In this level of automation, processes like contract management or price negotiation could be augmented by separate software and tools.

In more recent years, as machine learning (ML) and AI became more powerful, leading organizations have begun to use advanced procurement technologies combined with automation and AI to create truly intelligent, centralized workflows. The increasing popularity of procurement automation processes followed significant supply chain challenges during and after the COVID-19 pandemic, along with stressors like inflation.

In a 2022 survey of 1,500 Chief Supply Chain Officers and Chief Operating Officers, The IBM Institute for Business Value (IBV) found a sharp increase in the number of businesses introducing new automation technologies in the two years prior, as well as the number of organizations using AI to help monitor and track performance.

Procurement departments that might have previously siloed procurement tasks can increasingly manage the entire procurement process, from end-to-end, in a central repository, allowing for advanced data analytics and real-time visibility into spending patterns and vendor dynamics. These unified procurement workflows, augmented by key technologies, reduce friction and provide better experiences for both procurement professionals and their partners. 

Whether deployed as a series of key automations or as a holistic automated procurement system, automation in the procurement process can eliminate bottlenecks, increase the speed of the approval process and reduce order cycle time. Some key benefits of procurement automation initiatives include:

• Increased efficiency

• Cost savings

• Improved compliance

• Enhanced visibility

• Stronger supplier relationships

• Data-driven decision-making

• Rapid scaling

Automating repetitive tasks such as order processing and invoice management significantly speed up the procurement cycle, reducing waste and allowing organizations to quickly adapt to new conditions. Automation technologies also facilitate faster onboarding and analysis: Using key automations, procurement professionals from IBM currently onboard suppliers ten times faster and conduct pricing analysis in ten minutes rather than over the course of two days. 

By minimizing manual errors and optimizing supplier negotiations, organizations can achieve substantial savings. Automation allows for the rapid, accurate comparison of prices from vendors along with increased capacity for procurement tasks as an organization grows. 

Automated systems can enforce adherence to company policies and regulatory requirements, reducing the risk of fraud and promoting accurate reporting. Today’s procurement automation tools can seamlessly and accurately filter vendors according to local regulations, sustainability metrics or other factors to facilitate an organization’s broader goals. 

Real-time data tracking allows for better insights into spending patterns, supplier performance and inventory levels. Using these procurement solutions, organizations can adapt quickly to new data points and more effectively audit the entire procurement process to achieve better results. 

Improved communication and transparency lead to better collaboration with suppliers, fostering long-term partnerships. Collaborative vendor relationship tools, augmented by automation, simplify the process for both suppliers and businesses, improving the overall experience for both parties. 

Access to comprehensive analytics enables informed, data-driven decision-making based on accurate information. This is particularly true in the procurement process, which involves large quantities of data gleaned from multiple internal and external sources. Automated procurement systems, augmented with AI, can help identify weak points and forecast potential future issues. 

With automated procurement systems, organizations see fewer barriers when it’s time for the business to scale. Software overseen by employees requires less overhead to take on more work and makes onboarding new vendors seamless. 

Purchase requisitions, otherwise known as purchase requests, are known to move slowly through the approval process. Automating this process can speed up approvals and enhance visibility into spending patterns—as well as allow purchasing experts to work more efficiently. Automating this process might involve providing employees with easy-to-navigate templates and providing approvers and stakeholders across departments with immediate notifications regarding a request. Once the request is approved, an automated system can generate a digital purchase order related to the transaction, safeguarding transparency into spending and reducing instances of human error. 

Automated invoice matching and approval workflows improve accuracy and efficiency in payments. An automated system typically digitizes and centralizes data related to invoices, automatically cross-references those invoices against key databases and files them for easy cross-departmental access. Procurement automation software also quickly and accurately processes payments from accounts payable and provides a record of the transaction. These systems can reduce missed payments and redundancies as well as allow visibility across the organization, form the procurement department to the finance team. 

Centralized databases and automated systems facilitate better tracking of supplier qualifications, performance metrics and compliance. Automated supplier management systems provide procurement specialists with immediate access to historical data, as well as key information about a supplier’s location, ESG practices, cost and other metrics.

Using these tools, procurement departments can more effectively filter potential vendors, compare bids and quickly request quotes or other information. Some enterprise resource planning (ERP) systems, such as SAP, provide collaborative tools for vendors and buyers to connect and negotiate within a single shared platform. 

Automation streamlines order creation, tracking and fulfillment reducing lead times and errors. These systems might provide automatic notifications to key departments regarding order creation and fulfillment, track the movement of good using internet of things (IoT) technology or automatically update delivery times based on weather conditions and other dynamics. 

Automated systems manage contract lifecycle events, establishing timely renewals and compliance with terms. These contact management tools create a centralized and searchable repository of contracts, promoting internal transparency into the contracting process. Typically, these automated systems also automatically notify and update stakeholders about upcoming deadlines related to contract terms, driving compliance and allowing time to renew or renegotiate agreements that are about to expire.  

Automation tools analyze spending data, highlighting cost-saving opportunities and supplier performance insights. Given the amount of data procurement departments handle, spend analysis and forecasting can be a critical tool in a business’ success. Some automated procurement systems and enterprise resource planning (ERP) systems can provide advance warning of poorly performing suppliers or sub-optimal contracting deals. 

Regardless of an organization’s particular procurement strategy and the automation solutions it chooses to deploy, some common best practices include:

• Setting clear objectives

• Selecting the right technology

• Engaging key stakeholders

• Standardizing process

• Training and skilling employees

• Monitoring and optimizing

• Ensuring data governance and security

Define specific goals for automation, such as reducing processing time or enhancing supplier engagement. 

Choose procurement software that aligns with your organization’s needs and integrates seamlessly into existing systems. Think critically about the end user experience to make sure that the technology is seamless for the users who will interact with it most. 

Involve relevant departments and users in the planning and implementation process to make sure that the solution meets their requirements. 

Develop standardized procurement processes to drive consistency and improve user adoption. 

Provide comprehensive training for users to maximize the benefits of the new automated system and upskill procurement employees to prepare them for their augmented roles.

Continuously assess the performance of automated processes and make adjustments based on feedback and evolving needs.

Make sure that the data used in a procurement automation system is clean, accurate and stored in accessible formats. Implement robust security measures to protect sensitive procurement data and comply with regulations. 

In combining automation and AI technologies with cloud infrastructure, organizations have the potential to radically increase efficiency. For example: One government agency in the United States using these tools reduced its average claim processing time from over 15 days to five minutes. Automation in procurement typically creates the greatest value when infused across several systems or workflows. As the IBM Institute for Business Value (IBV) has found, five areas in which these technologies have the most impact include:

• Real-time, automated, frictionless processes

• Ethical and sustainable risk-management sourcing

• Partnering for third party exponential value

• Agile operating models

• Empowering the workforce 

Removing friction from a procurement department’s processes can have rapid and tangible results: Accelerating the speed at which buyers procure services or goods and offering a variety of channels through which they can interact with a business, is among the top benefits of automated procurement. One Asia Pacific financial institution, hoping to improve its compliance practices and performance, automated its source-to-pay services process. By digitizing and standardizing these workflows, the organization saved $20 million in operating costs and prevented the loss of over $70 million in duplicate or mistaken payments. 

As consumers demand more transparency in how brands are sourcing goods and leading organizations strive for carbon neutrality, sustainable procurement practices have become critical to a business’ success. Automation and intelligent workflows bring more transparency to the procurement process and can allow procurement leaders to seamlessly control for ESG metrics like lower emissions. The RCS Global Group, a platform for the responsible sourcing of data, recently used a blockchain platform to assure buyers the materials used to create electric vehicle batteries were ethically produced. Innovations such as these increase buyer trust and simplify the increasingly crucial work of responsible sourcing. 

One-third of recently surveyed Chief Supply Chain Officers reported working with suppliers in new regions over the last three years. In an increasingly global business environment, collaboration and problem-solving is key. Interconnected ecosystems of service providers deploying analytics, AI and automation have the opportunity to partner more rapidly and effectively, adapting to the emerging landscape. 

Modern procurement operations are comprised of multi-disciplinary teams focusing on key outcomes rather than single, siloed projects. Using automation, data analytics and AI organizations have the opportunity to make key procurement decisions based on real-time data, accessible across the business. Empowering procurement employees with this data results in more streamlined, agile operating models and allows organizations to scale more efficiently. According to IBV research, 54% more organizations with an integrated procurement and accounts payable team significantly outperform their competitors on revenue growth and effectiveness. And one global chemical company, using automation and analytics, improved operations over six areas, gaining $50 million in cash flow as a result.

As with other business areas, automation and AI are best deployed to augment human labor—and free employees to focus on more relationship-intensive, creative tasks. In procurement, automation might inspire an organization to completely rethink employee roles, dramatically unlocking their potential. Rather than reacting to smaller issues, automation in procurement allows the workforce to act proactively, paving the way for business-level innovation and increasing business value across the board.