November 02, 2022 | Procurement Strategy Blogs
The rising cost of input material coupled with the need to ensure supply continuity during disruptions have made the job of procurement organizations more complex. This has led to a sort of race to digitalize procurement.
But not all digitalization efforts are same, and the same goes for the outcome.
Companies need to evaluate their current procurement processes through a procurement maturity model before they can try to transform them into digital ones.
Understanding its procurement needs allows the organization to set and reach goals for higher maturity levels and what is essential for digital transformation.
The procurement maturity model measures a company's ability to optimize its procurement function, understand the current practices and controls for procure-to-pay and implement digital technologies. The model helps companies set goals for both.
There are four stages of Procurement Maturity Model and they are as follows:
In this initial stage 1, companies invest in goods and services without any strategy. Employees who purchase the solutions run purely tactical operations. The finance team manages the budget without asking questions, and there’s no focus on quality or service levels.
In stage two, the organization’s management starts to see cost savings potential. It hires procurement professionals to help them purchase goods and services and oversee and negotiate contracts. Technology is used to increase the number of events and the value they deliver.
In stage three, the value provided by category managers is limited by the technology available to scale. When they lack the technology or have limited access to it, they run into problems with the scenarios and models and analytical capabilities. Managers can still focus on strategy and add additional weight, but it will be limited. Strategic sourcing can help them at this stage. They can also choose how to award specific contracts by considering constraints and budget.
Businesses can drive innovation with help from their suppliers by partnering with them. In this state, procurement and sourcing leaders work closely as partners to identify ways for the company to get more value from its purchases and rethink relationships with suppliers.
Companies with the best workflows have all their spending processes, such as invoicing and payments, streamlined on one platform. In addition to managing these processes and sourcing new items, the organizations also tap into community intelligence data to make smarter buying decisions.
Organizations need to be efficient in using people, processes, and technology. Moving to the higher stages of the maturity model lets the company make purchases strategically, manage spend, and get results that improve the bottom line.
Procurement needs to change gradually to reap long-term benefits. If it moves for full-scale digital transformation without being ready for it, it risks disrupting budgets and creating a mess. Consider the areas that need optimization most in the company such as the procure-to-pay process through a cloud-based software to streamline the process, standardize information, and gain control over spend data.
There are many ways to use a procurement maturity model. The most common way is to use it as a roadmap to help organizations improve their procurement processes. Organizations can identify areas where they need to improve by understanding the different stages of procurement maturity.
A procurement maturity assessment is a process that helps businesses understand where they are in terms of their procurement maturity. Based on this information, companies can develop a plan to improve their procurement maturity. It can help them save money, improve efficiency, and better meet the needs of their customers.
A Procurement Maturity Model Assessment Tool is a way for businesses to evaluate and improve their procurement processes. It helps companies understand where they are in terms of procurement maturity and provides a roadmap for improvement.