Exploring the Benefits of Supplier Management Automation

To rely on manual processes to manage suppliers in this new world of sourcing means ignoring the potential value that exists in supplier contracts, which can be realized through automation.

Here are the 4 areas of supplier management where automation can replace manual processes:

1. Performance Monitoring

Most large organizations do a good job of capturing performance data for the services delivered by their suppliers (e.g. using ITSM tools to capture performance data for IT services). Some buyers hand over the task of reporting performance data to their suppliers (in good faith, of course).

Unfortunately, this data resides in silos and there is no automated way to validate if this performance is in line with the performance obligations that the supplier had agreed to in the contract. Additionally, this raw data is in a highly granular and disaggregated format making any kind of performance analysis tedious and prone to error.

Automation can help in making this process more effective. With new-generation supplier management systems, it’s possible to compare the performance data from ITSM tools (and any other source of this data) against the underlying contractual obligations in an automated and seamless manner. Such supplier management systems (a) integrate with ITSM tools (such as ServiceNow) to capture the performance data; (b) granulate contract documents into structured, obligations level data; and (c) possess sophisticated analytics capabilities to run real-time, comparative analyses of performance on multiple parameters across suppliers, geographies, and functions.

2. Invoice Validation

Validation of invoices with complex, variable structure is a time-intensive task requiring several rounds of audits by finance and legal experts to ensure that the agreed services have been charged as per the contracted rates and as per the actual supplier performance.

Due to the complexities of manual data collection and maintenance, often the data at the supplier end doesn’t match the data and evidence available with the buyer leading to invoice disputes and trust issues. Such issues can be resolved by leveraging automation to perform a 3-way audit of the invoice data against the underlying contract data and the actual performance data.

Modern supplier management systems have the ability to seamlessly integrate with enterprise finance systems (such as ERP or Procure-2-Pay) and enable a structured comparison between the invoice, contract, and performance data.

3. Managing Governance Meetings

Managing minutes of meetings with suppliers and following up on the action items agreed upon during these meetings are often done through e-mails, spreadsheets, and power points. This creates issues with versioning and leads to redundant discussions.

By managing all governance interactions through a centralized supplier management system, a record of all meetings, attendance, minutes, allocation, follow-up, and closure of action items can be tracked and reported in an automated manner. This ensures that objective data is easily available to assess the health of the buyer-supplier relationship rather than depending on subjective observations/opinions.

4. Reminders for Key Contractual Milestones

A contract may include statements of work (SOW), amendments, pricing clauses, etc. containing expiration dates. Losing track of this important information can put an enterprise at a disadvantage especially when it wants to renegotiate a contract or take advantage of market opportunities. Automated reminders for key contractual milestones and events can add to the bargaining power of an enterprise and enable them to drive higher value from service contracts.

Multi-sourcing can lead to significant benefits for an organization in the form of enhanced flexibility and reduced dependency on a single vendor. However, to be able to leverage these benefits the organization needs to have a streamlined supplier management environment. Organizations cannot depend on manual, time-intensive processes if they want to succeed in today’s dynamic sourcing environment.

ERP systems automated key processes in finance and accounting a couple of decades ago and greatly improved companies’ ability to manage their day-to-day operations and reduce overheads. Similarly, companies today need to deploy robust supplier management technology for better management of their complex, multi-sourcing engagements.