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How Buyer-Driven Procurement Became the New Normal

Traditionally, time, cost and a lack of resources put severe limits on procurement professionals' supplier vetting process. But traditions are changing.

Traditionally, time, cost and a lack of resources put severe limits on procurement professionals' supplier vetting process. But traditions are changing.

Recent trends are shifting the balance of power in favor of buyers. Procurement departments now have a wide variety of tools in their arsenal, each designed to narrow the information gulf between buyer and supplier. Armed with e-sourcing solutions that grant a clearer view of potential partners, help navigate regulatory hurdles and unlock organizational value, buyers are ditching their comfort zone and forging more robust partnerships with their vendors. Rather than getting mired in processes, buyers can dedicate themselves to creating more efficient supply chains.

3 trends fueling procurement software’s buyer-friendly shift

Procurement software’s buyer-centric evolution wasn’t unprovoked. A handful of regulatory and economic trends have instigated this overdue change:

  • Compliance: In the post-Enron/Worldcom era, regulatory bodies continue to crack down on corporate accounting practices, especially with regards to the Sarbanes-Oxley Act (SOX). High compliance demands incentivize buyers to preserve the status quo, and value predictable relationships with established suppliers over the risk of a potential regulatory disaster. But paperwork shouldn’t inform business strategy. To prevent procurement professionals from becoming bogged down in the technicalities of complex and frequently changing regulations, firms need sourcing solutions with automated compliance capabilities.
  • Supplier Visibility: Due to the enormous monetary and reputational stakes of a supply chain sourcing error, many are averse to supplier change. This fear equates to buyers who fail to pursue more balanced relationships with their suppliers. The best remedy is more supplier visibility: pricing, compliance, insurance and financial data can be critical indicators of a potential vendor’s future performance. Procurement teams are realizing that their work doesn't end once a contract has been signed. Supplier performance must be tracked and measured consistently to ensure businesses make the best use of their resources.
  • Strategic Sourcing: Procurement is often considered a tactical decision, but sourcing is strategic and holds significant weight over a buyer’s future success. Buyers have generally struggled to move beyond day-to-day procurement concerns and address deeper supply chain challenges and goals. As companies search for cost-saving opportunities anywhere and everywhere, procurement professionals are under pressure to extract value from the supply chain, rather than simply manage spend on a contract-by-contract basis.

New capabilities to address emerging needs

Given these circumstances, procurement and e-sourcing solutions are morphing accordingly, including new functionality such as:

  • Contract management: Automated contract management tools help procurement teams unify disjointed information and simplify internal audits. These integrated systems allow auditors to trace deals from end to end, beginning with the bid and contract and ending with a goods receipt and invoice. Paired with other compliance controls and workflow features (e.g., the ability to automatically reject invoices that fail to reference contracts, search old contracts and review contract history) these tools let procurement professionals focus more on building their supply chain and worry less about regulatory blunders or organizational dysfunction.
  • Supplier data management: For buyers, the advantage of a 360-degree view of future and current suppliers can’t be understated. Sophisticated supplier data management features embedded in procurement solutions facilitate the risk assessment process by giving buyers clarity into suppliers' credit standing and certifications. Vendor search engines allow buyers to compare a large pool of potential partners instantly. The ease of managing supply chain risk with powerful procurement software has informed both supplier selection and negotiation strategies, resulting in contracts that are more sensitive to buyers’ needs.
  • Supplier performance evaluations: For procurement teams to constantly improve their supply chain spend, they need to constantly evaluate their partners. While most supplier fraud manifests as charges for undelivered products and inflated shipping charges (like when the Pentagon paid $1 million to ship two $0.19 washers), automatic invoice screening and approval has made these errors a legacy issue. Expanded analytics also let buyers objectively assess supplier performance, and encourage more symbiotic relationships between firms and their vendors.

Modern e-procurement tools are liberating buyers from their historical time and resource constraints. By unifying once separate information sources and automating manual tasks, these new tools free organizations to better evaluate suppliers and make smarter purchases. Today's strict regulatory demands and emerging supply chain risks seem to stack the cards against buyers. But now more than ever, powerful technology has made procurement a buyer's world.

Dan Amzallag is CEO of Ivalua