Henning Hatje
Henning Hatje

The critical role of software in ending tactical procurements neglect

The critical role of software in ending tactical procurements neglect

Almost all organizations have realized the importance of a good strategic spend strategy. Therefore, procurement departments rightfully focus on optimizing them. Nobody disregards the key role that Strategic spend has on stakeholder interests, however, companies have yet to realize the untapped potential that tactical procurement optimization offers. The reason for the deprioritization of tactical spend varies, yet its neglect is ubiquitous.

Deprioritization where there exists massive potential

Indirect spend (of which tactical spend is a part) has been growing globally by an average of 7% yearly since 2011 [1]. This explosive growth coupled with massive leaps in digitalization could produce department overreaching savings. However, balance sheets show no such leaps. According to McKinsey, it is difficult to pinpoint the exact reasons for this inefficiency; however, three major ones come up [1]. The fragmentation of spend across business units, locations and categories make company-wide inefficiencies difficult to identify and realize. Furthermore, the lack of influence that indirect procurement leaders possess, inhibits them from accessing the right talent and technology. Finally, most companies lack the proper mechanisms to monitor and identify the effects of tactical savings on financial statements. All potential solutions to tactical spend, must not neglect these three core barriers. Digital transformation offers a way out. Through the successful integration of tactical procurement tools, firms can work around these barriers to achieve a tangible and direct impact on the bottom line and other stakeholder objectives.

An objectively undeniable reality

Similar to how the procurement function has developed from a clerical order taking role, to one that requires top talent, procurement tools are evolving from analog to automated. Even though 76% of CPOs report making digital transformation a top priority [3], just 22% of purchasing departments report making optimal and sustained use of digital solutions [2]. Attitudes are however changing, as evidenced by the fact that in 2019 only 56% (compared to the above mentioned 76%) of CPOs had digital transformation listed as a top priority [3]. However, it takes more than a high place on the priority list to change companies’ procurement processes. The implementation of the best software solutions is key to realizing their goals.

Types of software solutions

When assessing companies’ e-procurement needs, it is important to differentiate between software platforms and tools. Tools are standalone software products that are designed for specific functions. For instance, in its current form, Lhotse is a tool. It is designed for the specific function of sourcing competitive offers for tactical spend needs. Platforms on the other hand are databases, operating systems or large pieces of software that build the foundation of employee workflows. In order to reap the benefits that come with the power of a platform, Lhotse is currently transitioning its tool in that direction. Some of the hallmarks of platforms are that they allow for the development of an ecosystem and can be integrated with external tools, data, and teams.

The importance of tool integration

Developers of large platforms annually receive thousands of requests from customers asking for special features. Most are not implemented due to the high cost of development and the risk of over-complicating the user experience of all users. This is where tools can help. Special features can be added to digital workflows without first having to convince platform developers to integrate them. This allows for a tailored set of software tools within employee workflows. Companies who manage to successfully pick and choose the correct tools, can greatly improve workflow efficiency and save costs.

In order for the integration of tools to be successful, two main conditions must be fulfilled. These being synergy with existing systems and successful integration into employees workflows

Lhotse ties it all together

Lhotse has developed an easy to integrate tool that addresses the key challenges facing tactical procurement. Lhotse allows companies’ procurement teams as well as employees from all functional areas to easily get competitive offers for their tactical spend needs. Lhotse works by letting employees easily specify their tactical procurement needs. After that, Lhotse’s procurement specialists work with the right amount of automation to give customers the very best offers.

During its past and continuing development, Lhotse worked with two goals in mind. Lhotse wants to offer a solution to the systemic issues plaguing the tactical spend process while simultaneously being mindful of the importance of plug & play integration to existing systems. Lhotse has achieved just that. To date, users have been able to generate 12% cash savings and are spending an average of two hours less on each tactical purchase. Users are also finding that Lhotse integrates well with existing platforms while simultaneously being able to function as a stand alone solution. Lhotse offers a simple solution to decades old neglect.

Sources

[1]https://www.mckinsey.com/business-functions/operations/our-insights/revolutionizing-indirect-procurement-for-the-2020s

[2]https://www.pwc.de/en/strategy-organisation-processes-systems/digital-procurement-survey.html

[3]https://www2.deloitte.com/content/dam/Deloitte/us/Images/Misc/infographic/us-2021-global-cpo-infographic.pdf?icid=learn_more_content_click