Procurement processes involve the transaction and movement of materials between suppliers and buyers, typically from a supplier’s warehouse to either the buyer’s warehouse or factory. The entire process of sourcing, purchasing, and relocating these materials is known as the procurement process. Often, procurement and sourcing are used interchangeably, as sourcing is the first step of the procurement process.
However, sourcing is only one aspect of procurement. If we define it more exactly, sourcing involves selecting a supplier or vendor for raw materials, while taking into account country of origin, pricing, and contract terms. Once these details are finalized, the rest of the procurement process begins. This includes placing orders with suppliers and transporting the goods to the factory.
The procurement team's role is to ensure that the right quantity and quality of goods are ordered and that transportation responsibilities are efficiently coordinated.
After finding a supplier that meets all requirements, the team works with the supplier to ensure that delivery is handled appropriately. This collaboration is fundamental to maintaining a smooth and effective procurement process that ultimately supports the entire supply chain.
Procurement’s Role in the Supply Chain
Modern procurement processes touch almost every aspect of an organization, from finance and supply chain management to production and distribution. If there is a delay, or materials don’t arrive on time, this has an impact on the entire company.
That’s why, before addressing modern procurement processes, we’ll first need to take a step back to understand what role supply chain management plays in procurement.
If we look at the supply chain’s most basic elements, it starts with a need for raw materials. After identifying the best-seller, the raw materials are transported to the buyer, who transforms them into finished products for sale to other manufacturers or end consumers.
For instance, consider plastic production. A crude oil company extracts oil and sends it to a refinery. After separation, the materials are sent to a facility for polymerization. A manufacturer then buys the plastic pellets to create products like water bottles or phone cases. The final company sells these products to end consumers, such as grocery stores or online retailers.
Coordinating between different businesses in the supply chain can be complex, especially when managing demand. Supply chain managers often anticipate demand and pre-produce materials, like during Christmas or for seasonal products, to ensure production meets market needs.
That’s where procurement comes in.
The Relationship Between Logistics and Procurement
Procurement doesn't just intersect with the supply chain, it also intersects with logistics, which includes both transportation and warehousing.
To be sure we’re on the same page, let’s also clarify that logistics isn’t just about moving goods from point A to point B; it is also about deciding whether to store goods in a warehouse or move them to another location. This more general role ensures that goods are managed efficiently throughout their journey.
Many people mistakenly believe that logistics is only about transportation and overlook the component of warehousing. However, logistics teams also play a role in determining the best storage solutions based on factors such as available space and demand. They ensure that goods are stored or moved in the best way to meet business needs.
As we mentioned above, procurement plays an important role in logistics processes by purchasing goods from suppliers and coordinating their transportation to and from warehouses.
The logistics team has a similar role as they determine the final destination of these goods based on space and need. This collaboration ensures that the supply chain runs smoothly, with procurement and logistics working together to transport and store goods at their final destination.
Challenges Procurement Teams Face Today and Solutions
Procurement teams face a variety of challenges depending on their role (i.e. maintaining purchase records, transportation coordination, sourcing,), making it a complex problem to solve. Each part of the procurement process has unique issues, making it difficult to find a one-size-fits-all solution. However, one common theme across the industry is improving supplier relationships.
Stronger supplier relationships can help motivate suppliers to act more agile. This is especially beneficial when responding to changes in demand or supply availability, improving the overall efficiency of the procurement process.
For example, consider a supplier that produces 10 units of plastic pebbles per month. They supply these pebbles to a company that manufactures plastic garden supplies in the winter for spring sales. The procurement team must maintain a good relationship with the supplier to ensure timely delivery of materials for upcoming demand. This relationship becomes critical during peak seasons when any delay or shortage can disrupt the entire supply chain.
In addition to supplier relationships, procurement professionals need accurate information about goods and inventory movements. Current solutions often provide basic tracking capabilities but lack actionable insights. This limitation forces procurement teams to spend significant time communicating and entering data into ERP systems. Without detailed and real-time insights, it becomes difficult to make informed decisions and optimize the procurement process.
Moreover, the lack of advanced tracking solutions means that procurement teams often deal with incomplete or outdated information. Knowing that a supply shipment is in the middle of the Atlantic Ocean is not helpful if there is no actionable insight into the expected delivery time or potential delays. As a result, procurement teams need better tools that provide comprehensive, real-time data so they can proactively respond to disruptions.
Geopolitical Risk and Procurement Automation
Geopolitical risks at the supplier's location can be unpredictable and highly disruptive to procurement processes. These risks can be caused by a variety of reasons, such as political instability, trade disputes, or natural disasters, which can disrupt supply chains or dramatically increase the cost of goods.
Consider the scenario of a buyer in Spain sourcing critical components from a supplier in Portugal. The buyer's coordinator went on vacation for a few weeks during the summer holiday and missed an important email about a 20-day shipping delay due to a local strike. Since no one checked the coordinator's email during his absence, the company was unaware of the delay. As a result, the ERP system continued to show the original delivery commitment, masking the impending disruption.
This situation resulted in significant financial losses, estimated at 70 to 80 million euros in just five days.
Automation and advanced technologies can play a critical role in addressing these challenges. By integrating AI and machine learning into procurement processes, companies can improve their ability to anticipate and respond to geopolitical risks.
Automated systems can also monitor various data sources, detect potential issues, and provide actionable insights, enabling procurement teams to make informed decisions quickly. This not only helps avoid costly delays but also enables a more agile and resilient supply chain.
Gaining Access to Hidden Procurement Intelligence
It's no secret that communication and critical information are often shared across multiple channels and stored in different formats, making it easy to miss important details. Emails, PDFs, Word documents, and other file types capture relevant information at different points in the buying process, but it's difficult to gather it all in one place. Thinking back to our example of the company missing an email because a team member was on vacation, it's easy to see how these things can happen.
This fragmentation is currently one of the largest challenges faced by modern procurement teams as it leads to critical information being missed or inaccessible, impacting the procurement process.
AI and machine learning can address this challenge by capturing and monitoring information across channels and languages, and understanding the intent behind communications. These technologies unlock valuable insights and deliver them to those who need them most, streamlining the procurement process and ensuring details aren’t overlooked.
Holocene's software extends this capability by learning, capturing, and connecting all critical information in a single platform. This integration eliminates the need for suppliers to use the same SAP system, allowing procurement professionals to focus on higher-value tasks such as relationship building. By simplifying information management, Holocene enables procurement teams to work more efficiently and effectively.
Holocene Supports Relationship Building Between Procurement Professionals and Suppliers
Holocene supports relationship building by sharing critical information in two primary ways: (1) Sending alerts about potential supply impacts and (2) monitoring inventory levels to prevent shortages. If we go back to our example above where there was a shipment delay due to a local strike, Holocene would have alerted the company, allowing them to take action in advance and avoid potential financial losses.
In addition to alerts, Holocene tracks critical raw materials for customers, ensuring continuous production and eliminating human error. By monitoring inventory levels, Holocene helps prevent unexpected production stops and ensures that all critical components are consistently available. This comprehensive tracking provides procurement teams with a clear and accurate view of their supply chain, increasing transparency and accountability.
With hundreds of suppliers to manage, procurement teams can benefit from Holocene's ability to provide a consolidated view of all communications and transactions.
How AI Maps the Intelligence Gained from Supplier Information
The foundation of supplier relationships is built on three primary components: (1) The buyer's inbox, where email communications occur; (2) documents such as PDFs and Excel spreadsheets that are exchanged between parties; and (3) ERP data, which stores information from the buying company's warehouses.
These components capture critical details, but often in a fragmented and confidential manner, making it difficult to consolidate and validate the information.
No software currently provides a comprehensive view of the entire procurement process, preventing both transparency and accountability. Even when discrepancies arise in email communications or ERP systems, the data is often too sensitive to share openly in meetings. This lack of data-driven visibility means that sourcing relationships rely heavily on trust and past interactions rather than hard evidence.
Holocene bridges this gap by capturing and integrating all relevant communications and data into a unified platform.
This enables procurement teams to access a consolidated view of the entire process, from order placement to the goods being received at the warehouse. By providing a transparent and accountable view, Holocene ensures that any bottlenecks or issues are quickly identified and addressed, improving the reliability of the entire procurement process.
These improvements not only streamline communication and reduce errors but also strengthen supplier relationships. When procurement teams can rely on accurate, real-time data, they can negotiate and coordinate more effectively, leveraging past interactions while having the evidence to support decisions. This combination of relationship-building and data-driven insight fosters a more agile and resilient supply chain.
Want to learn more about Holocene? Book a demo to see how we can help improve your supplier relationships!
.svg)
