Differences between traditional procurement and digital procurement

Now, procurement teams are faced with a dilemma between recognizing and adapting to the new digital procurement methods or continuing to use the outdated traditional procedures, which are no longer rational.

Differences between traditional procurement and digital procurement

This is how you may determine which option is best for you. The new software as a service (SaaS) buying procedure is enhanced by digital procurement. A reliable digital procurement platform will produce a centralized location at which each application and subscription can be monitored.

Vendor management helps reduce overall expenses and determines which products provide adequate value for their prices and which ones may be eliminated totally from the technology stack. This results in cost savings. Additionally, it assists in the consolidation of data across the firm, which enables leaders to examine the ways in which different tools interact with one another across their technology stack.

The process of making decisions in modern procurement also tends to be repetitive and take place month after month and year after year. One can practically always consider a recurring subscription renewal to be an independent buying choice.

What is the result? Buyers who are astute and aim to minimize their expenditures at each and every stage of the purchasing process. In addition, dangers associated with “rogue digital procurement” are reduced thanks to the utilization of digital procurement.

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The dangers posed by questionable digital procurement

Although purchasing SaaS technologies is now simpler than ever before, doing it without the assistance of a digital procurement platform can feel like a game of chance.

Employees can easily install SaaS technologies on their own with just the click of a button; all they need to do is accept the terms and conditions (which, of course, the majority of us do read in their entirety, right?). This can lead to hidden costs and security problems, which are also referred to as “shadow IT” and “black billing,” respectively.

Shadow IT

The term “shadow IT” refers to any software that was acquired by an organization without the involvement of the IT team. Because there are so many SaaS tools accessible, and because the organization does not have a central SaaS management system, shadow IT can quickly amass, exposing the company to a considerable risk. This means that the money leaves the organization without any documentation, leaving the company open to the possibility of security breaches.

The acquisition of SaaS through decentralized channels makes it considerably simpler for shadow IT to penetrate organizations. Tools such as Google Suite, Slack, Zoom, and payroll service providers are typically paid for by centralized teams. However, the employees directly purchase hundreds of other products, and these tools do not go through compliance checks prior to being merged with the rest of the technology stack.

This puts companies at danger of not complying with various regulations and security standards. The System and Organization Controls (SOC), the General Data Protection Regulation (GDPR), and the Health Insurance Portability and Accountability Act are three examples of laws pertaining to data privacy that a great number of products fail to adhere to (HIPAA).

Even if these restrictions do not apply to a particular solution, using solutions that are not comply with the regulations puts a firm at danger of having data stolen from it. When employees leave a company, they sometimes take behind them unfinished applications, which are referred to as orphaned apps. Or, what’s even worse, they have continued access to these programs.

All of this speaks to the necessity of utilizing a digital solution for the management of procurement, instead of the old traditional one.

Dark billing

Companies that lack a unified procurement process and system face an additional significant challenge in the form of waste caused by SaaS. This can result in charges that are not visible due to irregular invoicing patterns. As a result of the fact that many technology suppliers are committed to ambitious annual business objectives, such as improved net dollar retention, some companies have resorted to questionable invoicing tactics in order to fulfill their annual goals, including the following:

  • Failing to inform clients when a free trial becomes a paid account and vice versa. When joining up for a free trial, users are typically prompted to provide a credit card. This is done in the hope that they won’t forget about the deadline and end up being switched over to a paid account. Because of the terms that must be accepted in order to use the trial version, it is frequently impossible to back out of the contract.
  • Transactions that take place in secret and on a regular basis. The vast majority of SaaS vendors sell subscription services, which often necessitate periodic, quarterly, or annual payments in advance. They frequently fail to send any kind of communication to their consumers, despite the fact that they should do so each time there is an impending charge. In the event that a company does not review their bank and credit card statements, it is possible that these costs will go unnoticed.
  • Billing on a pro rata basis. When using subscription services, businesses make an agreement in advance that they will pay a predetermined minimum amount for the entire year, no matter what. Licenses, API calls, or data consumption can all serve as the foundation for a subscription model. Even if the business does not make use of all of the units that it has purchased, it is still responsible for paying for them. If they go beyond the number of units that were agreed upon in the contract, they will be subject to additional fees.

Why a digital procurement platform is necessary for your business

The traditional purchasing process can be brought into the modern SaaS environment through the use of a digital procurement platform. It provides an overview of all purchases, tracks usage to determine which tools are valuable and when they need to be trimmed, and provides a central location for enterprise teams to securely manage and view all SaaS tools. In addition, it tracks usage to determine which tools are valuable and when they need to be trimmed.

You can improve the efficiency of the entire process of purchasing goods and services by using a digital procurement platform instead of a traditional procurement one, particularly in the following four areas:

Enhanced instrumentation

The vast majority of businesses either use optimized tools for their day-to-day operations or completely transition to using them. The subsequent stage is to ensure appropriate sourcing and cost control. Your procurement tool stack can be made more efficient with the assistance of process automation software. This software can track all expenses, purchases, and suppliers while also lowering the amount of manual labor connected with orders, approvals, and other tasks.

Optimized Frugality

Spending monitoring is one of the features of large-scale procurement that is one of the most disorderly aspects. With an up-to-the-minute view of the money being spent and the budget that is available, businesses are able to optimize their expenditures and reduce the number of redundant systems and contracts.

Tracking the amount of software used is one of the most straightforward strategies to save expenses. Financial experts in the modern day consider every expenditure to be an investment and measure both consumption and returns. You shouldn’t be shocked if more companies start keeping track of the number of Zoom meetings that are held with each purchased license.

Optimized Growth

By providing both predictive and proactive sourcing, centralized procurement systems enable businesses to improve their level of purchasing flexibility. Instead of rolling out point solutions across the enterprise, companies should focus on improving their partnerships with their suppliers to support strategic investments that drive the company’s growth rather than implementing these point solutions.

Improved ownership efficiency

When companies expand, centralized procurement can become a barrier, which slows down teams’ ability to buy and deploy strategic solutions. This can be a problem. Teams can be supported through the procurement process by using a platform for procurement management, which can also help them meet policy and budget requirements. Companies are able to shift their attention to what truly matters – the work itself – when they free up staff members and move away from laborious approval systems.

The Future of Procurement

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