Process Management 4 mins read

Process mining optimizes procurements and supply chain

A solution to issues involved with procurement and supply chain is available: process mining is that solution.

Dr. Helge Hess Dr. Helge Hess

Process mining helps you optimize procurement processes to achieve supply chain resilience. In many industries, problems in global supply chains lead to massive impairments in the ability of companies to deliver and compete.

Global supply chains are under some of the greatest stress they have experienced in the last decades. Complaints about bottlenecks and problems with procuring materials are at an all-time high among industrial companies, according to surveys.

Almost all industries are affected by shortages of raw materials. For example, the shortage of semiconductors and chips is particularly noticeable among car manufacturers, their suppliers and in consumer electronics. Another example is the increased demand for wood for construction means it is now considered a scarce commodity.

Procurement processes move front and center

The associated costs and the lack of delivery capabilities have a direct impact on both your bottom line and top line. This moves your entire procurement system into the center of the discussion. Analysts agree.

A study by McKinsey said that 81% of companies will need to reimagine procurement operations.

Bain & Company estimates in a March 2022 study that “more than 60% of the total value of procurement stems from operational efforts.”

And a study by PwC (Digital Procurement Survey 2022), said that companies plan to invest an average of € 1.28 million digitalizing their procurement processes.

Process mining and analysis

Optimization requires process mining and analysis: analyzing your purchasing processes in detail to identify weaknesses, so you can initiate improvement measures.

At first sight, procurement represents itself as a relatively simple operational sequence: A requirement request is provided, examined and transferred into a procurement order. After the product is received from the selected supplier, the product and the calculation are examined and then the invoices are paid.

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However, it turns out that several variants and deviations cause a high degree of complexity in procurement. These variants and deviations complicate, increase the cost of, and slow down operational processing.

Here are some examples:

  • Alternative offers from suppliers are often not directly comparable
  • Requisitions are rejected and revised before an order is generated from them
  • Delivery delays occur in manufacturing or transportation; orders are split into multiple deliveries
  • Inspection in receiving may reveal quality problems that require returns
  • Invoices are disputed and paid only after modification.

All these examples lead to repetition and multiple work, and this operational complexity increases both procurement costs and lead times.

Supply chain planning is a complex process that involves phenomena known as the “bullwhip effect,” leading to inventory shortages and oversupply in the wrong places.

Causes and correlations

Process mining leverages digital fingerprints and enables all procurement processes to be fully analyzed – both in terms of the structure of the flow and the resulting KPIs. Based on the process data, intelligent algorithms for root-cause mining make it possible to reveal the causes and correlations of delivery problems and process deficiencies, and to initiate optimizations.

Beyond the corporate boundary, many companies are now trying to make product production take place closer to the point of sale, in order to counter delivery bottlenecks. Another possibility, especially in the direct-to-consumer sector, is build up a warehouse yourself or use the services of 3rd-party logistics companies – thus enabling e-commerce brands to focus on their core business.

Additionally, the entire supply chain network is at the center of regulatory requirements: the supply chain act passed in Germany comes into force on January 1, 2023, and for the first time it regulates corporate responsibility for human rights compliance in supply chains – not only among direct suppliers, but also across hierarchies. The EU commission has announced that it will issue an even stricter directive.

Monitoring is also essential with regard to these compliance requirements: process mining makes it possible to monitor the specific execution for each procurement process and to compare it with the applicable regulations or to immediately object to violations.

In our global, networked economy, resilient and responsive ecosystems are replacing value chains that were previously fragmented or opaque. To strengthen global connectivity, minimize risks and increase resilience, companies must not only make their own operations more transparent, but also those of their trading partners.

Process mining is key. Click below to learn how ARIS Process Mining can help your company optimize its procurement processes and heal your broken supply chains.

Read the original article here on OPEX.