• 8 min read

Tackling Issues in IT Sourcing and Procurement

IT is unquestionably one of the biggest expense items on any financial statement. IT sourcing and procurement, though not a direct procurement, is viewed as a highly strategic type of procurement that enables companies to improve and streamline business processes, allowing them to go to market faster and deliver greater value to their employees, customers, partners, and other stakeholders. Hence, performing the role of IT sourcing, procurement, or vendor manager can be daunting, with a lot of expectations and responsibilities. 

Before we jump into any explanations, arguments, or conclusions, go through these commonly heard dilemmas shared by procurement, sourcing, and IT professionals that maintain and support the tech platforms used by procurement and sourcing specialists:

“Often there is a lot more back and forth when we negotiate sophisticated IT contracts for IT services, SaaS products, software licenses, and hardware purchases. It is like we want to do something but we are bound by something else. ”

“Mapping and analyzing data on current IT spend patterns is getting tougher and tougher, with almost zilch visibility”.

“Identifying cost drivers and opportunities in complex marketplaces has become next to impossible.”

“Working with cross-functional project teams, stakeholders across different departments is a challenge in itself, we are running everywhere but going nowhere!”

Here we shed some light on the underlying issues in technology sourcing and procurement that can be tackled by having an enterprise-class source-to-pay solution in place. Let’s have a glance at the current burning issues and challenges that every single IT sourcing and procurement leader or an IT vendor management professional faces!

1. Unclear Expectations - Hindrance in the growth and scope of technology procurement

The chaos starts with unclear and hazy expectations. Many times, due to communication gaps or incorrect analysis, or lack of required knowledge, technology procurement criteria are under the clouds. On one hand, technology spending rises exponentially, within and outside the IT organizations. On the other hand, the vendor base is also outgrowing. To deliver commercial value, IT sourcing and procurement, including, vendor management teams must engage and interact with new vendors that are shaping and re-defining the market with innovative technology.

Finding the right vendor that promotes the growth and scope of technology procurement, calls for an approach of continually reviewing and re-assessing all vendors and identifying potential vendors who can play the role of a strategic partner for your organization, thus helping you drive towards your goals.

Role of AI in Meeting Procurement Expectations

  • AI can identify shifts in global supply trends and help see higher sourcing savings through increased visibility into procurement.
  • Provide you with the data-driven insight needed to evaluate your vendor performance.
  • Aid you to reward the best vendor and put in time and resources toward sustaining a long-term profitable relationship with such strategic vendors.

2. Complex Vendor Ecosystems

For any source-to-pay process, the supplier management functionality acts as a backbone. In technology procurement, managers need to evaluate and select appropriate vendors that fit the criteria and then sign IT sourcing and procurement contracts and purchase orders for the necessary products/services. If a business is growing faster than expected, its existing vendor(s) might not be able to deal with increased demand. The problem is that there are so many clauses that it becomes very difficult to manage multiple vendors and their respective contracts.

As per Accenture, companies miss out on 30 percent of improvement opportunities by doing a poor job with compliance

IT vendor management teams need to categorize current as well as potential vendors based on the performance criteria like:

  • strategic value and risk
  • compliance
  • expectations

For efficient collaboration with vendors, IT Vendor management teams must use tools and analytics to measure performance in compliance, collaboration, and project delivery.

Role of AI in Vendor Management

  • AI-based source-to-pay solutions can manage your vendor contracts in a secure, centralized repository that is easy to access from anywhere, anytime
  • Provides visibility into key contractual terms and conditions through intuitive dashboards
  • Provides automated notifications for upcoming key dates, such as a contract due to expire, an upcoming milestone, etc.
  • Facilitates collaboration with your vendors; vendors can manage their catalog, respond to quotes, manage and flip PO’s and collaborate with your team.
  • With numbers of pre-built templates and models, helps identify key terms, clauses, and obligations of interest
  • Also enables you to configure and automate your processes as well as track and report on your vendors and spend.

3. IT Asset Lifecycle Management

Often IT assets are purchased, received, and/or managed in a decentralized manner. This results in a lack of visibility of assets as well as hampers, audits, and validations. Hence, the traditional procurement approach leads to uncontrolled IT assets being introduced into the enterprise, which increases costs as well as security and compliance risks.

IT asset management is often driven by the purchasing and procurement process which leads to a lack of management of assets below certain cost levels, and the purchasing of IT assets outside of the control of IT asset management.

The financial facet of the technology (IT) sourcing and procurement process has a direct impact on both the company’s profitability and its vendor relationships — virtually every partner in the supply chain.

Depending on the nature of the business, IT procurement and purchasing costs alone range from 35% to over 70% per sales dollar, according to IBM Global Procurement.

This calls for a centralized and intelligent system that includes better contract negotiation so that your IT contract terms and conditions are in line with your business objectives.

Role of AI in IT Asset Lifecycle Management

  • AI-enabled lifecycle management improves license control and auditability by connecting software assets to licenses and expiration dates.
  • Enables management of all IT assets with a centralized repository of asset information.
  • Allows you to link assets to users, teams, or any other record, for integrated IT process control and management.
  • Using NLP helps identify contract language that deviates from a company’s policies and allows IT contract managers and legal to review the most pertinent clauses in the document.

4. PO and Invoice Management

Once the contract is negotiated, approved, and onboarded, the immediate action needed is to proceed with the payment. In most organizations, expenses are processed by the accounting and finance system which is usually isolated from the technology i.e. IT sourcing and procurement team. When tools are disconnected, chances of discrepancy crops up. There may not be transparency of what exactly has been procured. In such cases, there would be a mismatch between the invoice and the actual services availed. So, must resort to manual processes to monitor progress and communicate status with stakeholders to avoid challenges, including:

  • Manual, time-consuming and error-prone entry of actual cost
  • Lack of real-time visibility into the actual cost of a project
  • Possibilities of missing expense lines cost against the project cost plan

Role of AI in IT Vendors Invoice Management

  • AI-powered invoice management systems eliminate manual validations and inefficient follow-up calls or long emails.
  • Facilitates execution of on-time payments with rules-driven conditional approvals, complete audit logs, and alerts.

5. Spend Analytics and Strategic Cost Optimization

In spend analysis, 90% of the challenge is with the data, and 10% is the visualizations.

In the majority of the organizations, when the business’ cost-to-income ratio is too high, they will need to cut down on contracted costs. This is due to issues like high cost per invoice, poor vendor communication, delays, and unrealistic expectations. With demands mounting to resolve issues in cost reduction, vendor management, spend analysis and spend control, IT sourcing and procurement managers ‘to-do list keeps mounting up! Things like approved vendor lists, easy report building, and proper catalog management can help to streamline the control and visibility of spending in the business.

With AI-enabled solutions, streamline and optimize your entire IT sourcing and procurement processes without requiring laborious, back-and-forth processes.

Role of AI in Spend Analytics

  • Artificial intelligence-based contract management systems can deliver the contract to the right person at the right location, notifying each signer when the contract is accessible.
  • It extracts actionable insights from spend analytics using ML and NLP.
  • It discovers, interprets, and communicates meaningful patterns to carve out savings opportunities, analyze tail spend, and detect anomalies.

What’s Next? Transform Technology (IT) Sourcing and Procurement with AI-enabled Solutions on ServiceNow

According to the data, “80% of employees waste an average of 30 minutes per day retrieving information.”

Modern procurement operations demand automation for speed and precision. Undoubtedly, an effective Source-to-Pay process makes procurement more efficient, responsive, and agile. As a technology sourcing manager, you are the critical link between your organization’s internal capabilities and the external value chain that includes your suppliers, partners, vendors, resellers, distributors, and even your end customers. Digitizing the procurement process with AI is a key for procurement leaders to get instant visibility into pending purchase requisitions, sourcing requests, and negotiations for expiring contracts. ServiceNow helps streamline your IT sourcing and procurement process with digitized workflows and provides you the ability to compare actual outcomes with service level agreements. You can automate end-to-end IT sourcing and procurement processes by eliminating the risk and unproductive work caused by traditional formats like spreadsheets, email, and error-prone manual intervention.

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