With ongoing disruptions and economic uncertainty, optimizing procurement has become mission-critical. Supply chain leaders are increasingly focused on driving value, resilience, and efficiency through their procurement operations.
But inefficient processes, poor visibility, and siloed systems hold many organizations back. Weak procurement capability correlates strongly with reduced profitability and shareholder returns (see Figure 1).
Figure 1. Correlation of procurement capability with profitability and shareholder returns. [Source: McKinsey]
Through my decade of experience in procurement analytics and process optimization, I‘ve seen firsthand how the right strategies can unlock substantial value.
In this comprehensive guide, we will explore four key ways organizations can optimize their procurement in 2024, drawing on the latest market trends and research.
1. Increase Visibility Through Procurement Digitization
Limited visibility into procurement data, transactions, and processes is one of the biggest barriers to optimization. Siloed systems, manual workflows, and poor documentation all contribute to fragmented visibility.
According to McKinsey, top-performing organizations have 2.4x more spend under management compared to those with low procurement maturity.
Digitizing core procurement processes through unified systems and automated workflows dramatically improves transparency and control.
Key Benefits
- Centralized data and metrics for real-time tracking and reporting
- Process efficiency through streamlined approvals and workflows
- Enhanced compliance and controls
- Improved spend analysis to identify savings opportunities
- Greater policy adherence by employees
Based on my experience, these digitization initiatives have generated 10-25% bottom-line savings through enhanced visibility alone.
Implementation Tips
- Conduct current-state assessment – Map processes, systems, and pain points
- Define standard taxonomy – Classify products, services, suppliers
- Start with high-impact areas – Source-to-contract, procure-to-pay
- Integrate systems – Break down siloes between procurement, ERP, finance
- Centralize master data – Suppliers, contracts, catalogs
- Automate repetitive tasks – Requisitions, approvals, invoicing
- Enable self-service buying – Guided online catalogs for employees
- Phase rollout – Pilot, then scale across spend categories
Leading procurement digitization platforms include:
- Procurement software – Ivalua, SAP Ariba, Oracle, Coupa
- AP automation – Basware, Medius, Tipalti
- CLM software – Icertis, Agiloft, Concord
- Marketplaces – Amazon Business, Grainger, Faire
Success Metrics
- % spend under management
- Process cycle time reduction
- Invoice processing cost savings
- Maverick buying reduction
- User adoption and satisfaction
2. Strengthen Supplier Relationships and Engagement
Looking beyond internal systems, optimizing the external supplier network is equally important. Suppliers that are strategically aligned, communicative, and collaborative are better equipped to deliver value.
According to McKinsey, a 10% improvement in supplier relations correlates to a 2.6% increase in EBITDA.
Here are key strategies to strengthen procurement‘s supplier ecosystem:
- Risk monitoring – Regularly assess risks, dependencies, and continuity plans.
- Communication – Maintain open dialogue through supplier portals and meetings.
- Technology integration – Enable seamless data sharing via APIs and unified platforms.
- Incentives – Offer rewards for performance, innovation, and sustainability.
- Development programs – Invest in building supplier capabilities and expertise.
- Diversification – Broaden supply base to mitigate over-dependence on individual suppliers.
Based on my consulting experience, organizations realizing the greatest value:
- Proactively monitor supplier risks using predictive analytics
- Foster long-term partnerships with strategic suppliers
- Enable real-time visibility into inventory and production
- Offer incentives for sustainability and diversity
- Co-innovate with suppliers to drive breakthroughs
With stronger collaborative relationships, suppliers become invaluable partners in navigating market uncertainty.
3. Optimize Inventory Strategically
While inventory optimization falls outside direct procurement purview, it remains an important adjacency. Procurement should strategically align planning with inventory teams.
Uncertainty has pushed organizations from just-in-time inventory to a just-in-case hybrid model. The goal is balancing efficiency with resilience by maintaining strategic buffer stock.
Inventory optimization levers include:
- ABC analysis – Prioritize planning for high-revenue A-class items
- Demand sensing – Improve forecasts with predictive algorithms
- Supply visibility – Access supplier production schedules and lead times
- Multisourcing – Qualify alternate suppliers to mitigate risk
- Automation – Streamline warehousing and reorders with software
McKinsey estimates that advanced analytics can reduce inventory costs by 20-50% while improving service levels.
For optimal results, procurement and inventory teams should:
- Jointly develop demand plans and forecasts
- Negotiate improved delivery lead times with suppliers
- Coordinate orders and logistics for smoother flow
- Identify duplicate and obsolete stock for liquidation
- Implement inventory optimization software
With cross-functional alignment, organizations can strategically balance stock levels, costs, and risks.
4. Accelerate Procurement Through Automation
Automation is reshaping nearly every business function, and procurement is no exception. Top performing teams use 3.4x more automation than peers (Hackett Group).
Automating repetitive tasks enables employees to focus on high-value activities like supplier development and strategy. Per McKinsey, up to 30% of procurement activities could be automated.
Key processes to automate:
- Purchase requisitions – Auto-approve low-risk orders
- Supplier discovery – Use AI matching algorithms
- Contract review – Apply NLP for fast analysis
- Invoice processing – Auto-capture data and route for approval
- Spend analysis – Classify transactions with machine learning
Leading procurement automation platforms like Unimarket, Ivalua, and GEP leverage RPA, AI, and advanced analytics to optimize source-to-pay workflows.
Implementation Tips
- Focus on high-volume activities – Requisitions, invoices, contracts
- Phase rollout – Pilot automation on a specific process or spend
- Minimize business disruption – Maintain continuity with existing systems
- Monitor adoption – Track usage, productivity, and satisfaction
- Continuously improve – Refine algorithms and leverage new innovations
Used strategically, automation can drive major efficiency gains for procurement organizations.
Optimizing procurement needs to be a top priority for supply chain leaders navigating market turbulence. While external conditions are uncertain, internal capabilities can be strengthened.
This guide outlined four high-impact strategies:
- Digitize core processes
- Collaborate with suppliers
- Align planning with inventory
- Accelerate through automation
Beyond these operational improvements, a holistic approach is needed. Ensuring you have the right talent, culture, and leadership better positions procurement to create value.
With strong digital capabilities and cross-functional alignment, procurement can pivot faster, improve resilience, and help drive enterprise performance. The time for action is now.