Businesses, large and small alike, are motivated towards efficiency and reduced costs. That is the nature of global trade: efficiency reduces expenses, and diminished costs improve the bottom line.
Yet, the further you go up in scale, the more important efficiency becomes, as small percentages shaved off of large budgets have an increasing impact for any company. The overwhelming majority of businesses with procurement concerns consider cost reduction a top priority. A 2018 procurement survey from Deloitte places this concern at a convincing 78%. The trend in procurement cost savings persists on a yearly basis: 61% of specialized managers continue to reduce expenses as businesses seek to stay competitive with their budgets.
And here, e-procurement’s role becomes more and more interesting. E-procurement is an important avenue of cost reduction and business optimization. It’s the electronic sphere of business-level purchasing, tendering, aimed at streamlining and improving traditional procurement methods in the B-2-B or B-2-G areas.
There are a few key factors that have led to the rise of e-procurement and similar phenomena in international trade:
● Competition
● Data-driven decision-making
● Technological (digital) transformations
Competition
As global markets saturate with innovative companies, flexibly-priced products and young adaptable businesses, competition drives change. WTO’s analytics for 2018 and 2019 demonstrate that import/export markets are seeing the rise of developing economies. Consequently, new players are entering the global market with new tactics, reduced domestic costs and a fresh mobile approach to doing business. With this trend in place, new and established international businesses are turning to technology, data and digital tools to stay competitive.
Data-driven decisions
As laser-focused decision-making becomes important in a data-driven world, so do analytical tools. Even smaller companies (not to mention larger ones) now seek to make business moves based on statistics, as well as internal and external analytics, instead of relying on intuition or blind chance. Software designed for procurement, global trade and logistics now regularly includes analytical components to fulfill the need of managers and specialists to stay knowledgeable about global trade (and even their own company processes).
It’s important to highlight specifically this duality: it’s equally vital for a global business to understand the status of international markets, as well as understanding what’s happening inside their own company. E-solutions may provide answers as to: how their own procurement budgets are distributed, where issues consistently appear, what improvements can be made to avoid negative patterns, etc.
Digital transformations
The needs and tendencies described above have led to several key advantages that global businesses now seek:
● Automation and the elimination of paperwork
● Lower percentage of supply chain and procurement mistakes (including human errors)
● Increased speed of addressing supply chain and procurement problems
● Improved buyer-seller communication
● Lower purchasing expenses
These and many other positive factors are now the focus of integrated digital instruments and worldwide online platforms that seek to offer a competitive edge to export/import companies.
Technologies in the supply chain
Procurement and supply chain management have historically been conservative areas of business. They have relied on manual and “paper” methods for decades. But this is now changing at a rapid pace, as the international business world looks for new ways to remain competitive.
Driven by the “Amazon (NASDAQ:AMZN) effect,” the standards for customer/partner service, delivery speeds and better pricing are ever-increasing. So, businesses are turning to technologies like AI, machine learning, Big Data and even blockchain as RnD avenues for improved trade practices. Besides the “carrot” of being simply successful in global and local trade, there’s also the “stick” of negative consequences for not embracing competitive technologies.
Partnerships with large buyers are becoming more demanding: for example, corporations like Walmart have started to impose up to 30% penalties on suppliers that delay or reduce the quality of their deliveries.
This means that technological tools and platforms that provide process optimization and better decision-making perform another important function: risk mitigation. Simply put, if a digital instrument can save you from fines, unneeded expenses or losses - you win out compared to your competitors. Or just ensure your business doesn’t go into the red.
In the B-2-B world, automation of everything from analytics to supplier searches, order histories and the pricing of goods is now seen as an increasing factor in the ROI of procurement tasks. In essence, manual methods are starting to lose their competitive capabilities: a company that is relying on “paper logs and Excel sheets” written out by humans is bound to produce poorer results than a business that uses lightning-fast digital platforms. The truth of the matter is: the most efficient jobs for a human mind in modern business are decision-making and partner interactions.
A full 33% of procurement managers (Deloitte data) are now looking at digital tools as a key factor in providing value for their companies. This is an impactful number of decision-makers, considering the traditionalist nature of the procurement sphere.
The e-procurement value chain
While the supply chain itself is a system that is designed to satisfy customer/partner needs through distribution channels and methods, the e-procurement value chain is a technological iteration on that idea.
It consists of tools and approaches that use digital methods of adding value, managing processes and reducing costs so your business gains a competitive edge. The e-procurement value chain may include: e-tendering, e-sourcing, logistics data management, contract management and other tech instruments to improve the trade capabilities of your business.
A great example of how technology has contributed to creating the concept of an e-procurement value chain is the eRFX concept. In the past, an RFX (“request for X”) has been a manual request in the procurement process: for example, an RFI (request for information) could be a slow and arduous mailing “conversation” between a buyer and numerous potential suppliers to find out the best deal/price in a tender. In a non-digital setting, this may take weeks and months. That, in turn, increases the chance of mistakes and cost-ineffective purchasing decisions. With eRFX or eRFI (the tech-powered method), the speed and efficiency increases greatly, as software handles inquiries, price comparison, analytics, etc.
Same goes for RFP (request for proposal), RFQ (request for quotation) and others. Any type of eRFX software is designed to streamline, increase the speed and efficiency of procurement, which reduces costs. This includes trade platforms, tendering e-solutions, survey-based digital tools and so on.
A comprehensive paper on e-procurement done by Giner Alor-Hernandez, Alberto A. Aguilar-Laserre et al, shows that global procurement is shifting towards the idea of supply management and digital value chains. Outsourcing and technological tools are behind this shift and 76% of surveyed CEOs view such digital methods as an important path to shareholder value.
Advantages of e-procurement for a business
E-procurement opens up access for companies to the global supply chain. In B-2-B, this includes both buyers and sellers. As you move from a local market to a global one, your options for better prices, better deals and better procurement-supplier relationships increase.
Needless to say, the more high-quality choices you have, the more information you have for decision-making, the more competitive and successful your business becomes.
According to expert opinions published by Aberdeen, platforms that integrate buyer-seller interactions into a single system help companies reduce expenses, improve trade strategy, and increase the safety of the procurement process.
In recent years, B-2-B has been increasingly taking on features and approaches of the B-2-C market. Looking for purchases, finding greater variety of offers and has become possible on online platforms that look almost like consumer retail marketplaces (in their convenience and digital capabilities). Procurement managers now expect almost the same level of features and comfort they experience in personal purchasing.
According to a B-2-B procurement study by Acquity Group: 68% of B-2-B buyers make their purchases online, 30% of them research the majority of products on the web, and 18% of buyers spend the lion’s share of their budget through digital tools as well.
Recent examples of digital e-procurement tools have been innovative platforms like ProZorro, Rialto and Tradalaxy. Such instruments are now offering B-2-B and B-2-G businesses new ways of growth and trade. ProZorro has been a leading example of B-2-G sector improvements in procurement, combating corruption, increasing transparency, improving analytics and risk management.
Rialto has aimed to implement similar advantages in B-2-B procurement through the digital route. And Tradalaxy has brought new avenues for B-2-B purchasing opportunities, by helping local sellers reduce costs and pricing through Free Trade Agreement zones and assisting buyers in safe purchasing and a greater variety of verified suppliers.
The technological advantages of platforms, integrated tools and marketplaces are increasing the competitive standard for e-procurement worldwide.