Management systems for purchases

So, purchase management on large enterprise is important, moreover, key process in business. If this event is really held effectively, also the key financial performance, namely profit and profitability which, certainly, are fundamental conditions in a question of success of all created business change. Management practice by means of carrying out fair competitive bidding, more precisely than auctions, tenders, quotation requests, offers and similar is most widespread. If to execute control of acquisition of necessary goods in the conditions of competitive environment, there are quite serious reasons to believe that it is just that method which allows to purchase necessary products of the highest quality, the necessary quantity, in the selected time and at the same time at the smallest on that costs.

Procedures of this sort in the environment of the business world give the chance to realize the main idea of the modern market – fair, open competition. In this case the customer is capable to make an objective choice of rather most advantageous offer from his potential suppliers of the necessary products. The benefit of implementation of such purchases according to experts sometimes exceeds even a threshold of 25% of the planned and selected budget.

2018: Digital transformation of purchases: straight away

On January 30, 2019 the international company Boston Consulting Group (BCG) specializing in management consulting shared with TAdviser article "Digital transformation of purchases: straight away".

As noted in article, cost reduction in the field of purchases — one of rather easy and fast ways of increase in business performance. For this reason this lever of increase in efficiency is so demanded among the CEOs and shareholders of the companies in Russia. However most of them, as of 2018, are focused on process optimization — writing of regulations, review of roles, change of KPI, increase in level of automation and so on, often forgetting that improvement of processes is still not everyone. Crucial aspect in purchases — cost reduction as such. Successful increase in efficiency of purchases with a specific binding of levers to a financial result can increase profitability on EBITDA at least by 3–5% a year. In this case to save it turns out first of all due to the choice of optimal levers in terms of total cost of ownership, decrease in level of consumption of the purchased goods and services and also review in / outsourcing on production to a pereda of lamas. At the same time, in addition to direct economy, optimization of purchases allows to achieve also other parallel goals: for example, to trace a supply chain through subcontractors, to exclude the risks connected with corruption, unfair suppliers, etc.

Digitalization — the driving force and the main instrument of increase in efficiency of purchases. However often in Russia implementation of "digit" remains only a craze, without allowing to solve fully the delivered business challenges, noted in BCG. For this reason prior to implementation of digital solutions the company management should define for itself several important starting points:

• The management should have an exhaustive list of problems and their initial reasons — it is necessary to direct investments and resources to really important directions to solve these problems.
• Basic process automation and integration between key IT systems of production, demand planning and its providing should be provided.
• Roles should be accurately fixed in the company and the level of requirements for employee competences and new candidates is determined.

According to experts, the specifics of Russia are also that the domestic companies owing to objective circumstances often "slip" the certain evolutionary stages which are earlier passed by many western companies. Digitalization is not only and not just technologies, and new business models therefore implementation of the digital solutions "straight off" in many cases allows to pass successfully to new steps of evolution at once, without intermediate "stops". An excellent example of such quantum leap — the Russian bank industry which for the last 5 years turned into one of the most advanced in the world in terms of digitalization implementation level.

The recommendations presented in article are universal and concern all industries: they create a basic basis of how it is necessary to approach digitalization of purchases, emphasized in BCG.

As you know, conversion of purchasing function to powerful digital "engine" — the difficult task requiring deep understanding of all variety of proposed solutions and the software. According to experts of BCG, the greatest success those companies which efforts are directed not to technologies, and to the fundamental purposes of purchases and business in general try to obtain.

Correct way to digitalization

As noted in article of BCG, successful purchasing functions begin with the fact that define those directions of value creation — economy of costs, quality, innovations, speed or risk management — which are crucial for implementation of key value proposition, and then on this basis select optimal digital technologies and scenarios of their implementation for implementation. Such functions also define what main levers — the organization, processes, the personnel, performance management, cooperation — provide formation of cost, and then implement the relevant decisions and software. As the base they use all variety of available data that allows to understand more deeply a situation and is better to make decisions.

Thanks to digitalization of purchasing function value proposition of the company can reach absolutely new level, however it will demand considerable time and resources. If, following a way of conversions, the enterprise did not define to what it aims to come, then the result will not cost the spent efforts, experts claim.

At strategic orientation it is much easier to define on what section to create additional value and how to define the specific technologies, the most suitable for this purpose. According to the recommendation of BCG, the company should focus on the different directions of value creation, levers of implementation and architecture of the systems of data (see the drawing below).

How to start digitalization of purchases

According to forecasts of experts, in the next several years the digital systems, most likely, will become one of the most topical issues for most of purchasing directors. However digitalization of purchasing activity — a difficult task. To achieve success, the companies need to build the strategy of digitalization proceeding from those directions of value creation, levers of implementation and architecture of the systems of data which are most relevant taking into account their specific competitive situation, specified in BCG.

Being guided by these purposes, the companies can take further steps for implementation of digital strategy, estimating scenarios of use of digital technologies taking into account the specific business requirements and requirements to implementation and also developing a comprehensive plan of implementation.

It is obvious that digital technologies offer many opportunities for value increase, created thanks to purchasing activity. But only functions of purchases which when choosing digital means are guided, first of all by strategy will be able to reach qualitatively new level of operational efficiency and will help the companies to achieve long-term strategic objectives — are convinced of BCG.

Digital transformation of purchases is more detailed to study article ": straight away" it is possible here. Article is included into a series of the publications BCG under the name "Strategic Purchases in a Century of Digital Technologies". A series is devoted to comprehensive consideration of approaches using which the companies can achieve high efficiency of purchasing activity.