THOUGHTS

Procurement Processes can Acquire Substantial Benefits from Cloud Solutions

Aug 30, 2016

Cloud solutions can provide significant opportunities for a procurement process, including cost effectiveness, energy efficiency, and a more coherent and navigable global supply chain. While there are risks and challenges, cloud solutions appear to be on the rise as companies and governments find ways to address the issues and reap the benefits of these technologies.

Cloud solutions can offer governments and private companies opportunities lower start-up and switchover costs than traditional solutions as well as reducing the cost of implementing and operating valuable e-procurement platforms. While cloud solutions have benefits, governments and companies must be aware of the risks associated with these solutions and work with vendors to mitigate these challenges. Issues of financial incentives, service quality, and data security present concerns for buyers and they must be addressed before widespread adoption of cloud solutions can take place. In addition, cloud solutions can help companies become more environmentally conscious by improving energy efficiency and enabling better supply chain oversight. Despite the few challenges associated with cloud solutions, it is predicted that by 2020, half the procurement infrastructure will be outside the data center. Even governments, which are traditionally slow adopters of new technology, are getting on board, and the UK government has already revealed plans for a “cloud-first” procurement policy.

Why Move to the Cloud?

Cloud solutions offer low cost and reliable alternatives to existing ERP-built reporting tools. Leaders in the Procurement industry are predicting an overall shift in procurement and supply chain departments moving away from these ERP-reporting tools in favour of application-driven user interfaces and cloud-based application platforms. These new solutions offer procurement professionals the opportunity to purchase products from app stores 24/7 and facilitate the sharing of information within complex global supply chains. Global sourcing was traditionally hard to implement; however cloud-computing solutions can simplify this task. By aggregating the abundance of digital information on every partner in the global supply chain, cloud computing can bring simplicity to a complex and intricate web of global relationships.

In addition to tackling global supply chain challenges, cloud solutions can help companies and governments reduce the environmental impact. In today’s interconnected and environmentally conscious world, conducting business in an environmentally responsible manner can be an important factor to consumers. Cloud solutions can improve the energy efficiency of operations, and a 2012 study by the Natural Resources Defense Council found that cloud solutions use less energy than conventional data centers.

Cloud solutions also allow for better oversight of industry best practices and help organizations take advantage of emerging trends. As cloud platforms collect more data from different sources, organizations can quickly identify and adapt to emerging trends. Cloud solutions also enable oversight of how other companies and suppliers interact with the world around them. For example, using a cloud solution, a diamond seller could collect data on all suppliers and identify those sourcing conflict minerals. Armed with this information, organizations can then make better decisions that may offer market advantages or better reputations.

Finally, cloud solutions can advance the procurement process by improving port efficiency. The Chinese city of Ningbo recently installed cloud infrastructure with assistance from IBM. Ningbo is a logistics hub, and a number of  companies have a stake in the port. This cloud infrastructure has reduced idle time and increased the flow of goods, offering cost saving solutions to companies that rely on the port.

Challenges of Cloud Solutions for Procurement Professionals

Cloud platforms provide exciting opportunities for procurement professionals, companies, and governments; however, they must be aware of some of the risks that are inherent to cloud vendors. Negotiating contracts that mitigate these risks is important for organizations looking to implement cloud solutions for a procurement process.

Financial incentives should be tied to define performance service levels, including payment suspension rather than refunds for downtime as refunds are often difficult to collect from vendors. Guarantees and service quality should also be negotiated as performance measures, and if possible, should be related to aspects such as bonus payments or contract expenses. Data security is one of the most significant concerns organizations have when switching to cloud solutions, and as such, vendor security practices must, at the very least, align with buyers’ internal practices and relevant security legislation.

Aside from the risks associated with cloud solutions, finding employees with the skills needed to manage and operate these platforms will be a challenge. As the rollout of cloud solutions will likely fall into the hands of procurement professionals, organizations must find professionals who posses the skills required to manage supply chains within the cloud.

Cloud, Procurement, and the Future

Cloud platforms present organizations with opportunities to improve global supply chains, 24/7 purchasing options, and cost reduction capabilities. In addition, they can improve the energy efficiency of operations and offer companies better insights to make informed decisions regarding suppliers. Although cloud solutions have many benefits, there are a few challenges and risks that come with the switch to these new systems. Dealing with financial incentives, service equality, data security, and a potential lack of skilled staff all present issues to organizations looking to move to cloud solutions. Despite these challenges, many organizations are in fact switching to cloud solutions and the future is likely to see an increase in their adoption for improving a procurement process.

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