Top 5 Barriers to Procurement Digitalization and How to Overcome Them
Procurement is one of the most challenging aspects of running a successful business. Fortunately, it’s one of the areas where great strides have been made in terms of cloud-based solutions and digital procurement technologies as a whole. eProcurement is already a fully established reality.
However, your company may still be resistant to a fully digitalized approach to the procurement process. This resistance can have severe opportunity costs and may ultimately make you uncompetitive.
This article will show you some common barriers that come up when talking about procurement digitalization and how to address them.
Before getting into the substance of the barriers, it’s worth defining a couple of terms.
Procurement is often confused with purchasing or sourcing. While related, these are different aspects of a more extensive process. Procurement takes into account the entire chain of acquisition of third-party goods and services. It encompasses vendor vetting, negotiations, transport, and any other operation in the process.
Similarly, digitization and digitalization are sometimes confused. Your company is most likely already using digital procurement; it is digitized. However, digitalization occurs when digital tools are actively used throughout the entire procurement process. Moreover, data management and eProcurement tools are used within the process with a measurable impact on the bottom line.
The first barrier on this list is also probably the hardest to overcome.
Barrier #1 – Budget
The simplest and easiest way to dismiss any idea is to say it doesn’t fit the company’s budget. It’s the single most significant barrier to digitalization.
Ultimately, every organization has a limited pool of resources, and every expense has to realistically justify its investment. Digitalization is not difficult to justify in terms of returns, but it does have a few things working against it:
Decision makers with incomplete information, and a culture of valuing quick wins over long-term growth.
Showing a matter-of-fact ROI calculation is crucial to get stakeholder buy-in for the project.
Learn and Educate
To combat the lack of information, the first thing you need to do is get informed. Start by learning the current state of digitalization technologies. Focus on what digitalization can do, but also learn what it can’t. Getting a clear picture of what’s available is the most essential tool when presenting a digitalization project.
When you know what’s out there, you can start figuring out how it applies to your organization. With key capabilities and cost estimates in hand, you can create a plan that fits your budget.
Furthermore, consider piecemeal implementation. At Cloudia, modules are sold individually for organizations that want to take a gradual approach. That allows every piece of the package to prove its worth before moving on to the next. It also makes stakeholders less anxious when big spending decisions can be broken up into smaller ones over time.
Lastly, your biggest weapon is going to be raw numbers. With a reliable cost calculation of your current procurement practices, compare it to a pragmatic estimate of the costs under a fully digitalized procurement process. Showing a matter-of-fact ROI calculation is crucial to get stakeholder buy-in for the project.
No Quick Wins
Companies are always under pressure to produce results. However, fixating on fast results can lead to poor decisions for continued growth. To start implementation, you’ll have to move away from those quick wins.
For instance, chasing after a quick win can lead you to skip over the essential planning steps leading up to a negotiation. Instead, focusing on a methodical approach to finding a system that fits your needs can produce lasting success in the organization. If your business has access to data but never gets around to using it, you’re losing the resources spent to acquire it and the cost of opportunity of using it.
Furthermore, even if you’re not in a financial position to consider full procurement digitalization, you’re not powerless. There are concrete steps that your organization can take in preparation that won’t produce a major impact on your cash flows. Even if it doesn’t make sense now, being prepared is key because you’ll need it to remain competitive sooner or later.
The sooner you start on the path to digitalization, the more time your organization will have to adapt and learn.
Barrier #2 – Fear of Innovation
Most companies fall into the category of early-majority or late-majority adopters. That’s no surprise, but it can be a huge problem when it comes to genuinely disruptive technologies such as procurement digitalization.
The benefits of early adoption are significant. It gives your organization a big head-start over late adopters and makes you flexible and responsive to changes in the technology.
Waiting to adopt a technology that will eventually be ubiquitous inevitably puts you on the back foot. Instead of making proactive changes to adapt your business model, you’ll have to react to changes from your competitors to keep up.
When a key supplier or customer ultimately requires partners to have a level of digital interaction that you can’t provide, you could lose that business. And, new competitors born into a digitized environment will be miles ahead of you as soon as they open their doors.
The sooner you start on the path to digitalization, the more time your organization will have to adapt and learn.
Some Quick Wins
Ironically, the best way to get over the barrier of early adoption fears is to focus on what digitalization can immediately impact. It often hurts implementation, but it can help with adoption.
Showing what the short-term effects are can make it easier to get across how critical the switch is now rather than later. To do that, you’ll need to focus on your specific organizational needs. Focus on the most significant bottlenecks for your employees and stakeholders and show how digitalization can help.
- Help you draft and manage sourcing contracts effectively
- Reduce or eliminate tedious procurement tasks
- Optimize and eliminate bottlenecks in your sourcing process
- Reduce or eliminate maverick buying
These are only a sample of the potential short-term impacts.
Barrier #3 – Fear of the Unknown
Any new system or tool requires a commitment to learning how to use it. However, it also requires a commitment to learning how things will be different going forward. That kind of commitment and potential for mistakes makes some people nervous, naturally.
Your goals in overcoming this barrier are twofold:
- Give your stakeholders access to enough information to ease concerns about systems operation.
- Work to make the transition to a digitalized system as frictionless as possible.
Educating potential users is your first concern. There are a lot of resources at your disposal to assist in that. Services providers will usually be more than happy to walk you through the implementation process and provide information. It’s something that Cloudia provides for prospective clients.
You can also tap into your network to find companies that already have some experience with these types of systems.
If you manage to implement a transition, but users refuse to adopt it, it’s a massive waste of resources.
Easing the Transition
When you’ve managed to explain how the systems will work and what will change, you can focus your efforts on ensuring a smooth transition.
When people adjust to a particular way of doing things, they can become entrenched. It takes some convincing to get them to change to something completely different. Here too, as with budgeting, a piece-by-piece transition can be beneficial.
Adopting a single element at a time puts a smaller demand on people to learn new methodologies. Furthermore, the benefits of the system should be communicated every step of the way on an individual level.
A full transition into a digital procurement transformation isn’t a simple IT upgrade. A much more holistic approach is necessary to ensure success. Stakeholder support is required at every level.
If you manage to implement a transition, but users refuse to adopt it, it’s a massive waste of resources. The transitional process should involve all essential stakeholders. That can include anything from line employees to C-level executives.
Focus on providing clear goals and communicating to individuals how their actions contribute to those goals.
A successful digitalization ultimately aims to merge all data into a unified source. This helps to both ensure data quality and allows an integrated approach to data security.
Barrier #4 – Security Issues
Another important and valid concern is the security of your organizational data when migrating to an entirely digitized model. You may put not only your own data at risk but your suppliers’ and clients’ data as well.
But digitalization may actually do more to secure your data than it does to make it vulnerable. For one, many organizations still have siloed data models (i.e., their data is stored on fixed repositories isolated from each other). That’s both a huge security risk and a problem for digitalization. A successful digitalization ultimately aims to merge all data into a unified source. This helps to both ensure data quality and allows an integrated approach to data security.
Overcoming this barrier will boil down to finding secure partners in your digitalization efforts. The right partner will help you establish secure workflows within your organization and make data security their top priority. When choosing a supplier, ask them to discuss their security certifications. Also, make sure that you have the ability to set data access rules and permissions on their platforms.
Cloud services have good security standards on the whole, but that doesn’t remove the need for strong endpoint security. Ultimately, a two-pronged approach of a reliable supplier and strong in-house security is best.
Having a single source of final information is vital to ensuring a smooth deployment.
Barrier #5 – System Deployment
Briefly discussed in barrier number three, system deployment is another important hurdle to the digitalization process. Your efforts will never find much purchase if you don’t have a concise plan for how to deploy the system. That’s where your choice of vendor comes into play the most.
The right vendor will work with you to design a deployment process that works for your organizational needs. Furthermore, they can provide support and guidance through the entire process on both the individual and the corporate levels.
Moreover, the right procurement solution will be simple to deploy over top of your existing ERP solutions. Everything from case management to storage and even financial systems won’t be affected by a successful deployment.
As you already know, digitalization is a comprehensive process. To be successful, you’ll need to design a deployment process that involves stakeholders at every level.
Furthermore, it’s a good idea to designate a project manager whom people can turn to. Having a single source of final information is vital to ensuring a smooth deployment. The project manager can work with everyone individually to come up with a deployment schedule.
Digitalization in a Nutshell
As you can see, the process of eProcurement digitalization is not a simple one. However, it has a host of benefits for any organization. You may find other barriers when implementing your own digitalization, but these are common to most efforts.
Budgeting is probably going to be the biggest obstacle. Once you’ve overcome budgeting concerns, you’ll have a solid foundation to base the rest of your digitalization strategy on.
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