Traditional procurement solutions are characterised by manual events, many of which include small but repetitive tasks. These could include formulating contracts, signing off approvals, handling invoices, or any other routine task that managing supplier relations depends on. Many companies still depend heavily on these traditional processes, despite the major challenges and drawbacks involved.
The biggest problem with traditional procurement is that it’s so time-consuming, which makes it more burdensome on financial and human resources. It can also make your business less attractive to suppliers, especially those in the long tail. After all, few things test the patience more than unnecessary corporate bureaucracy when a small supplier just wants an approval signed off and an invoice paid for a minor transaction.
Understandably, procurement is a difficult process to control, especially when you have a huge and constantly growing portfolio of suppliers. Also, the 80/20 rule suggests that, on average, only 20% of your suppliers are strategic, meaning that they account for 80% of the total spend. Naturally, they’re the ones that deserve the most attention, but that doesn’t mean your long-tail suppliers (i.e.: the other 80%) aren’t important.
Recent years have seen increasing focus on the long tail of the supply chain both with a view to increasing efficiency and capitalising on new opportunities. By addressing the tail spend, businesses can spend more time building strategic relationships with their core suppliers and keep smaller suppliers happier by cutting down on the paperwork and the unnecessary time sinks that come with it. That’s why it’s time to move away from traditional procurement for the long-tail spend and instead look towards consolidation and automation.
Here’s a breakdown of the big drawbacks of traditional procurement for long-tail supply chains:
#1. Process complexity
Consider for a moment the steps involved in the traditional procure to pay (P2P) process. First, there’s the needs recognition, and then there’s the research stage as businesses determine the best place to get the product or service they’re looking for. Once a supplier has been found, that’s where all the paperwork comes in; terms and pricing, purchase orders, deliveries, expediting, inspection, invoice approval, and payment. So lengthy and complex is the process that it typically 15-45 days to onboard a new supplier.
Simplifying the process is especially important for long-tail suppliers, since they make up the majority of a business’s supplier portfolio. P2P platforms aim to reduce complexity by offering an end-to-end solution that integrates and automates each step. Another of the most important benefits of these integrated solutions is that they consolidate data to give spend management teams greater visibility into their finances and greater control over expenses.
#2. Business scalability
Supply chains have grown ungovernably large, at least for organisations relying too much on traditional procurement solutions. Small businesses often have thousands of suppliers, while large global enterprises may have more than a hundred thousand. When you’re running a growing company with branches all over the country and beyond, it doesn’t take long before the procurement process becomes unmanageable. This can result in maverick spending, in which spending falls outside of the organisation’s procurement guidelines due to departments trying to avoid unnecessary holdups. If that happens, it doesn’t take long before the expenses start spiralling out of control.
The traditional process can work fine for strategic suppliers, but when you’re using that same process to get a one-time job done or order low-price, high-frequency items from hundreds of different suppliers, it quickly becomes incredibly cumbersome. That’s why companies need to automate their long-tail procurement and regain control over the spend. By greatly reducing the time it takes to onboard and maintain smaller suppliers, companies can enhance scalability and better prepare themselves for future growth and expansion into new areas.
#3. Catalogue management
Because it takes so long to manage long-tail suppliers using traditional processes, catalogues often end up being woefully out of date. For example, a smartphone manufacturer may release a new model only to find out that all the protective covers and other accessories in the supplier catalogues were designed for a previous model. For anything other than simple pre-sourced purchases, traditional procurement does little to help teams choose the right suppliers, and there’s rarely any embedded classification of precisely what was purchased. The procurement team ends up looking backwards when looking forwards is more important than ever.
Procurement teams work tirelessly to build and maintain corporate catalogues, but according to the 80/20 rule, fragmented long-tail purchases account for an average of 80% of catalogue’s contents. And it’s much harder to keep a catalogue up to date if you have to spend the same amount of time hunting down product information and UNSPSC codes for minor suppliers as you do for your strategic (20%) ones. With access to structured data provided by a unified procurement solution, teams can source suppliers in less time and do away with the burden of outdated catalogues.
#4. Supplier onboarding
Traditional procurement solutions require that all suppliers are added to the same system and onboarded in the same way. This results in a huge burden for procurement teams as they try to manage large numbers of long-tail suppliers cluttering up their systems. At the same time, it becomes far less attractive to become a supplier to your company, not least because a fair amount of the administrative burden ends up falling to them too. This might include completing additional forms, chasing up unpaid invoices or, for service companies, constantly swapping around jobs appointments to accommodate delays caused by corporate bureaucracy.
Usually, major suppliers negotiating million-euro contracts with buyers expect a fair bit of back and forth as part of the onboarding process. But a supplier tasked with doing a small one-off job isn’t likely to be happy about spending weeks or even months going through a complicated onboarding process all for the sake of a €500 transaction. Indeed, that’s why some companies don’t even bother assigning PO numbers for smaller purchases, even though it may potentially be a breach of compliance as well as make it much harder for spend management teams to keep track of finances. By automating onboarding for long-tail suppliers, businesses can boost employee productivity and supplier satisfaction without all the unnecessary red tape.