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How Digitalization is Redefining Product Procurement

Karan Gupta, Senior Vice-President, SME Online, Moglix

A silent revolution is underfoot in India, apparent in India’s expanding scope of Digitalization of MSMEs. Be it a mom-and-pop store, a hole-in-the-wall shop, or a mid-sized firm that runs factories and employs hundreds of workers, more and more business entities are starting to  realize that running an agile business without embracing the new digital paradigm is impossible.

The statistics on Digitalization speak for themselves. Consider, for instance, that a report by global consultancy firm McKinsey states that the contribution to the GDP of core digital sectors can double to a whopping $355-$435 billion by 2025. The Digitalization endeavor underway in the country in varied sectors like agriculture, education, labor, logistics, energy, financial services, and many more are likely to create economic value of anywhere between $10 to $150 billion by 2025. Additionally, 60 to 65 million new jobs will be created, giving India’s consumption levels and standard of living a big push.

This change must be welcomed. The old norms and patterns of business are paving the way for the new. A host of activities ranging from payments, logistics, supply chain management, pipeline planning, and raw material procurement are undergoing a massive transformation. It should come as no surprise that in a survey of CPOs by a consultancy firm, it was revealed that, on average, the CPOs expected a 40% rise in terms of yearly savings, a full 30-50% cutback in time spent on transactional sourcing and a 50% reduction in value leakage.

The buck now rests with the entrepreneur. Efficient firm economics, a dramatic decline in raw material sourcing costs, and better top and bottom line are up for grabs, provided an earnest effort is made to incorporate these dimensions of Digitalization within the firm’s work protocols.

Arriving at the Next Technological Benchmark

There are hurdles aplenty in the way of any firm seeking to re-imagine and redesign its workflow patterns. For any small, possibly family-run business looking to leapfrog from pen and paper to excel sheets as a template to manage primary purchases and inventory is laudable. However, a larger firm should not be afraid to dream bigger. Digitization for a firm should include, within its scope, numerous operations like the purchase of goods and services, vendor shortlisting, purchase agreements, inventory management, monitoring of cash cycles, etc. The transformation should essentially deliver a much-needed stimulus for superior managerial decision-making by leveraging real-time data access. The data troves that emerge as a by-product of an operational revamping can deliver genuinely actionable insights that can yield enormous time and cost savings. What’s more, these insights often stem from operations that are either opaque or taken for granted by the managerial leadership.

The old matrix of a manual-operations-driven world is crumbling away in the face of a smart world propelled by technology that is more harmonious, intuitive, and productive. In the near future, smaller digitized operations, instead of being triggered by human intervention, will be supervised by an AI. This means that human intelligence can be utilized for more subjective tasks leaving the everyday, routine jobs to the AI.

More often than not, the data furnished from such digitization of operations is so rich that one can zero in and drill down to the unit-level cost of goods. Depending on the kind of final product one wishes to fashion, high data richness helps fine-tune operations, reduce inefficiencies, cull out leakages and eliminate redundant manual processes that inflate budgets. The switch in factory floor operations in the aftermath of such premium digitalization is generational. To top it off, the change is immediately apparent, as it is exponential rather than incremental. When factory floor operations evolve, positive fallouts of the shift start reflecting in the top and bottom lines of a firm.

We have a stellar track record of streamlining company operations so that the C-Suite leaders can start operating from the same page. At Moglix, we have collaborated with 1000+ enterprises with operations spread across 3,000+ locations as procurement enabled. Pulling off such a feat is easier said than done, given that the roadmap envisaged by each C-suite executive is wildly divergent from the other, even though every one of them wishes to reach the common goal of elevated savings, significant cost-cutting, and a healthier bottom line.

Benefits of Digital Procurement:

So, why should one transition to a digital procurement model? Notwithstanding the numerous benefits that one’s firm stands to gain, digital procurement can ease an entrepreneur’s life in more ways than one. Heightened transparency, greater accountability, and real-time operations management are possible only when a firm decides to raise the bar on its logistical blueprint.

  • Boosted optimization on a larger scale

Pain points continue to plague the product pipelines. The truth is that run-down supply chains hamper the operations of far too many firms in India. So many firms are known to swing wildly between the two opposing paradigms of holding excess inventory on the one hand and running into an operation stalling deficit on the other. Besides, other niggling problems like poor delivery performance, limited capability to adapt to more oversized orders, lost opportunities due to depleted raw material stock and delayed deliveries often pull down a company’s performance. Implementing a rigorous and detailed digital procurement can root out such drawdowns.

  • Supplier consolidation

Here’s a case study that will help the reader better understand the change that can be unleashed in a post-digitized workflow. Moglix was tasked with transforming the existing supplier base into a cement industry market leader with a rich legacy of over 80 years. The catch was that the cement major’s procurement operations spanned over 55+ manufacturing plants, and their supplier base was distributed across the length and breadth of the country. This led to an unwieldy situation where price inconsistencies across plants, service-level agreement breaches, and a noticeable rise in impromptu spending. Without a centralized intelligence overlooking such widespread and multi-branched decision-making, the cement major was bleeding valuable cash over ill-timed purchase decisions, not to mention the poor quality of data garnered by the company as a consequence of the plants operating in silos rather than synchronously.

Moglix set about correcting this matrix by consolidating the supplier base. A seamless catalogue-based marketplace interface was created for 5,000+ SKUs. Consolidating the supplier base also contributed to better controls on the overall OPEX spending across plants and the formulation of standardized pricing norms, dramatically reducing OPEX costs. Moglix’s Digitalization efforts also engendered a new harmonization in the work dynamic within the organization, and departments were able to operate symbiotically rather than at crossheads with each other. Besides reducing the procurement transaction time to 3 to 5 minutes, Moglix helped the company earn 5-7% direct cost savings and helped it create a unified ERP, which replaced multiple legacy ERPs operating in dissonance with each other.

  • Eliminate arbitrary decisions

Digitalization transforms supply chain operations by cracking down on maverick purchases. Maverick purchases happen outside the circle of a contractually agreed price due to quality or timing issues. These purchases ratchet raw material costs and inject unpredictability into the larger picture, symbolizing errant procurement behaviour. Digital procurement effectively alerts the procurement officer before things devolve to a position where stocks are at a critical level. Additionally, digital procurement can help fend off situations by foreseeing and preparing for emergency scenarios.

  • Purchases as a strategic gambit

Traditionally, the purchasing department has been viewed as a cost centre, a rather limited and stifling perspective. This view deprives the vertical of the right to re-invent and innovate, perhaps even re-imagine itself as a sizable piece in the larger jigsaw puzzle of a company’s future trajectory. It is only when the procurement pipeline has been digitized that the field opens up for incisive experiments, given that decisions are made in a data-rich environment rather than an instinct-driven one. With Digitalization, senior managerial leadership can behold how minor alterations and substitutions on the factory floor can yield massive savings.

  • Staying a step ahead of the competition

As the market landscape continues to veer towards Digitalization, the evolution of procurement pipelines engenders shorter working capital cycles, higher volumes, and more substantial profit margins for suppliers. No entrepreneur worth their salt can pass off the opportunity of digitizing his firm’s procurement processes considering that the cost of doing so is to help the competitor gain market share. A supplier will naturally value a digitally efficient firm over a manually inefficient one.

  • Boost employee satisfaction

This might be a middling point in the larger scheme of things, but it must be made. Digitalization will usher in diametrical changes to the job satisfaction of your firm’s chief procurement officer. A customizable dashboard will aid the procurement team in real-time monitoring inventory levels and raw material stocks while ensuring that the pipeline runs smoothly and that price fluctuations and other emergency scenarios do not disrupt factory floor operations.

  • Smarter decision making

With Digitalization, decision-making is powered by data-driven actionable insights. Leakages can be clamped brutally and efficiently whilst eliminating time accretive production practices. This can help the company stay in fighting shape as far as procurement and production are concerned.

  • Stronger supply chains in the making

A digitized procurement process consolidates suppliers by weeding out those who repeatedly, perhaps deliberately, deliver sub-par products at inflated prices. This narrows the list of suppliers to responsible players keen on supplying quality raw materials at economical rates within pre-defined time restrictions. It also helps the firm zero in on reliable suppliers who could receive favourable credit terms to help them expand operations that eventually serve the firm.

Risks inherent in the Digitalization of the Procurement process:

One must bear in mind that digitizing procurement operations is no panacea. While there are obvious benefits to the trade-off, one must introspect to ensure that their procurement pipeline is afflicted with problems within Digitalization. If a product pipeline suffers from fundamental complications, Digitalization might not be the best prescription for the firm.

  • Micro-management

With Digitalization, the likelihood of an entrepreneur giving in to the temptation of micro-managing rises multifold. With troves of data at disposal, one can end up mining that data and, in turn, resort to micro-managing, which can raise issues of ethos and human resources in the long run.

  • Non-digital Suppliers

With Digitalization, suppliers who have not evolved with the times and have either advertently or inadvertently opted to refrain from the digital revolution will be left behind in the lurch. These suppliers will be boxed into a corner and have to opt-in for the digital ecosystem or continue functioning in their set-in-stone ways before becoming extinct.

  • Integration Issues

Transitioning from a manually run, uncoordinated, disjointed procurement operation to a synchronized and harmonized chain is an enormous task and can take weeks, perhaps even months, to be fully implemented. Occasionally, the integration between the digitized procurement process and manually-operated legacy frameworks may falter. The firm looking to change its procurement operations must have patience and a fallback plan in case Digitalization does not yield the benefits anticipated.

Future of Digital Procurement

A clutch of new technologies is propelling digital procurement to new heights. Intelligent automation, Blockchain, data analytics, and visualization are helping firms become more innovative, agile, resilient, and transparent in their operations. This is equally enthusing for investors who can now demand metadata cache from procurement operations to extract better insights into a company’s future profitability.

While smart automation works for high-volume, complex, and multi-step data handling actions, Blockchain is a safe technology to verify origin and authenticity of goods. It allows multiple parties to form a public, visible record so all stakeholders can access critical data around goods and services. Blockchain technology can also be used to develop smart contracts for the P2P process. Data analytics automate and improve data cleansing, transformation, and classification operations, effectively helping firms enhance productivity and responsiveness. Real-time cyber tracking, spatial analytics, and virtual reality are other emerging technologies expected to impact digital procurement and its future.

It is high time for businesses to realize their potential. Their next growth phase cannot thrive with a purchase and procurement department held back by legacy frameworks. Digital procurement can be that push that can help businesses transcend old purchase practices and trigger a larger ecosystem change that can bring real value to all stakeholders.

By Karan Gupta, Senior Vice-President, SME Online, Moglix

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