Our new white paper details how taking a digital approach to procurement can bring dark purchasing into the light.
Companies know that managing spend and controlling working capital are vital steps on the road to growth, yet many are unable to achieve company goals due to ineffective and problematic business processes. One of the functions that is prone to bad practices is indirect spend management. The causes vary but include decentralization, lack of visibility, and a dependence on manual processes. And these issues, in turn, lead to dark purchasing; the “shadowy area where items purchased cannot be easily justified by capital outlay or by material inventory.”
To help understand the reasons behind dark purchasing and how to combat them, AmeriQuest Business Services has created a new white paper, “Defeating Dark Purchasing,” which is now available for download. Citing our survey of procurement professionals, the paper identifies major issues that affect procurement processes within companies. According to the survey, more than 40 percent of respondents noted that their company doesn’t have a procurement process in place, or they’re not sure if there is a procurement process at all, or there is an existing process but it’s not followed. No policy and no control can lead to chaos which explains why many companies fall into the black hole of dark purchasing.
Companies typically have much better control over their direct spend, which is usually centralized and subject to stricter controls over supplier choice and procurement processes. However, indirect spend is often handled at the functional level or business unit rather than at a corporate procurement level, which leads to working with local and potentially unapproved suppliers, along with manual and paper-based processes that preclude transparency and visibility into spend. Since indirect spend can command at least 20 percent of spend, that dollar figure can be significant and punishing to the bottom line.
But there is a way out of this morass by using a strategic, digital approach to procurement. This type of transformation means implementing an e-procurement system. Companies may have automated bits and pieces of their transaction processes but automating and digitizing the entire end-to-end, source-to-settle continuum is what is needed in order for finance to have a full understanding of the company’s spend, working capital, and cash flow. Simply automating the front end (POs and requisitions), while still relying on manual processes and paper for invoice approval and payments, doesn’t solve the problem. The manual, back-end processes can lead to overpayment to suppliers or, just as bad, late payments to suppliers, which can compromise highly important relationships between buyer and seller.
As the AmeriQuest white paper notes, “An end-to-end payables automation solution that is integrated across the enterprise is the most effective way to defeat dark purchasing and potentially save millions each year.”
Download the white paper to see how your procurement department can eliminate dark purchasing, give you a clear picture into your spend, and provide the tools to manage spend and working capital