The Business Case for Streamlining Procurement in the Maritime Industry
Updated: Oct 13, 2022
Procurement is an essential component of any business, but more so in the maritime industry. An unorganized or poorly managed procurement process could lead to various inefficiencies and unnecessary delays, leading to the shipping company's tens of thousands of dollars. To operate effectively, and to ensure SLA’s are met, there is minimum wastage and customer experience is catered to, shipping companies in the marine industry have several suppliers, vendors, and partners with whom they work closely to purchase goods and services, which have to be managed aptly by the procurement process.
Effective procurement processes save costs, aid compliance, ensure you work with reputable suppliers, and eliminate delays and mistakes. More recently, procurement is also a way to help shipping companies attain non-financial goals such as sustainability, reduce their environmental footprint and burnish their green credentials.
What is procurement?
Procurement is an overarching term for a set of steps that an organization performs to acquire goods and services that are essential to its operations. Procurement and purchasing are different even though people use the terms interchangeably but they are significantly different. To procure goods, organizations will identify the internal need, evaluate suitable vendors, negotiate terms, approve an internal purchase requisition, submit a purchase order, receive an invoice and pay it, take delivery of the goods & services and, finally, maintain records for audit purposes.
Procurement is, hence, an umbrella term that includes several internal processes – part of the so-called Procure to Pay (or Purchase to Pay) cycle.
Traditional Procurement Process in Maritime Industry
Procurement management for companies in the marine industry is crucial because of the volume of transactions a majority of these shipping companies handle. Most large shipping companies often have a centralized procurement function with their own employees and standard operating procedures which they have to follow.
There are various steps that the shipping company follows in the traditional procurement process:
Step 1: Identify the internal need (the business unit connects with the procurement department with the need)
Step 2: Invite quotes from the pool of vendors that match its capabilities
Step 3: Evaluate and select suppliers which best match the requirements of the business unit
Step 4: Negotiate contracts with selected vendors
Step 5: Goes to the business unit for approval
Step 6: Release the purchase order
Step 7: Receive the invoice
Step 8: Complete payment
Step 9: Maintain proper records in the database for future reference
Key Challenges in the Traditional Procurement Process
There are several challenges in the traditional procurement process. It's highly manual and therefore is prone to several inefficiencies. Usually, the entire procurement process could take anywhere between 3-4 weeks to complete, primarily as a result of back-and-forth Email communication. Additionally, the procurement quotations, invoices, and other important records are stored in Emails or on spreadsheets. Finally, this centralized procurement department works in a silo and often the tools lack integration to core ERP systems like SAP, accounting, etc.
This approach, therefore, is fragmented and highly inefficient. This makes it difficult for the procurement team to address the following challenges:
Tactical and not Strategic Procurement – Procurement has become a strategic area for the business rather than an operational one. It's hard to weigh options strategically without cohesive procurement processes; never mind implementing a strategy across multiple functional areas.
Managing vendors and suppliers – Supply chain challenges can bring businesses to a standstill and cause revenue losses. Even some of the most technologically advanced companies with established supply chain networks are not immune to the challenges of effectively managing suppliers. A piece-meal approach to procurement makes it hard to ensure reliable suppliers who deliver quality goods and services on time.
Impatient stakeholders – In most cases, when business managers would want to procure something, they need it immediately. Possibly, a critical project is behind schedule or they are facing pressure to deliver products. Inefficient procurement processes cause critical slowdowns, missed project deadlines, and stunt growth.
Unreliable data leads to poor business decisions -- Inaccurate procurement negatively affects profitability by creating an over or under-supply inventory. Worse, it could lead to senior management making commitments that the company cannot meet. Without quality data, any investments in new technologies (like machine learning and AI) might not yield the desired results. In the traditional procurement process in shipping companies, data is mostly stored in Excel spreadsheets or isolation over Emails making it difficult to retrieve and use for decision-making purposes.
Maverick purchasing – When employees are forced to deal with tedious internal procedures, they’re more likely to make purchases outside the normal procurement channel. Not only is this approach expensive for the business in terms of securing the best price, but also results in a lack of control. Moreover, it exposes it to regulatory compliance and other unnecessary procurement risks.
Talent management – Finally, putting employees in your organization to follow up with vendors or chase down paperwork might not be the best use of the talent available to your organization. These employees could be trained and placed where their skills are better utilized. Lack of talent is already a problem – a Deloitte survey revealed that over 50% of procurement leaders do not believe that they have the capability in their teams to deliver their procurement strategy, which is a problem. Couple this with inefficiencies in the system compounded by paperwork, this could lead to an increased cost of operations and a higher attrition rate among your employees.
The Digitalized Procurement Process for the Maritime Industry
Digitalization has crept in almost all functions of the business and the procurement process should be no different. The digitalized procurement process is very different from the traditional one and reduces any manual intervention unless absolutely required, eliminating any inefficiencies that come with it.
There are various advantages to the digitalized procurement process for the maritime industry. Firstly the procurement process is now automated and decentralized and can take anywhere between a couple of hours to a couple of days, depending upon the request. Data records are stored in a central repository and the access to structured data allows the executive management to make educated decisions in real-time. Finally, the integration with core systems like ERP and accounting ensures that data exchange is possible and it leads to the formation of a robust digital ecosystem that becomes the backbone of your organization in years to come.
The Business Case for Streamlining Procurement for the Maritime Industry
A recent Deloitte survey found that the level and speed of digitalization across procurement functions are abysmally low. Only about 18% of procurement leaders have a digital procurement strategy supported by a complete business case.
By streamlining the organization's internal procurement processes, business leaders can ensure that they do not just reduce costs significantly, but also reduce the cycle time and improve efficiency. There are a number of following advantages that automation and integration bring to the procurement process in the maritime industry:
Efficiency– Digital procurement processes are faster, more accurate, and ensure business standards cannot be bypassed. That means project managers get needed items on time, employees spend less time deciphering confusing instructions and correcting errors, and maverick purchasing is reduced.
Data analytics– Digital procurement produces reliable and structured data. With accurate data, it’s easier to optimize inventory levels and immediately have a positive impact on the bottom line. More important, clean digital data opens the door to analytics, machine learning and a host of opportunities e.g. ML could detect demand automatically and requisition deliveries.
Better use of talent– Ultimately, it’s your employees that are the difference between your success and failure. Digital procurement is a direct investment in your team’s job satisfaction since they’re now spending less time on paperwork and more time on the things that matter. They could be trained and deployed on projects where their skillsets could be better used for the benefit of the organization.
Lower risk– Digitalization and automation improves transparency in pricing, supplier relationships, and inventory levels. Transparency naturally reduces compliance and supply chain risks as well as the corporate risks associated with the fraud.
Strategic procurement– Procurement becomes an effective strategic partner only when aligned with key corporate priorities and when it’s measurable through objective performance metrics; digital processes would be the foundation for those.
QuickReach No-Code MRO: Maritime Procurement Made Simple
Procurement is now a strategic function with a wide-ranging business impact. A well-designed and effective set of digital procurement processes is a critical business need. There’s might be no need to rely on spreadsheets for purchase requisitions, purchase orders, and invoices anymore. In fact, using these techniques is highly inefficient, slows you down, and exposes your business to unnecessary risks. A digital procurement strategy starts with the foundation of transactional process automation which opens the door to deploying high-impact technologies like ML and AI.
By using QuickReach's No-Code MRO Suite, you would have pre-built templates which you are able to customize the procurement process using a simple drag-and-drop interface. Additionally, you would be able to build other support applications which would complement the suite of existing modules. Couple this with process automation and integration allows streamlining repetitive activities and the ability to connect easily with third-party applications via built-in recipes or direct integration.
Connect with one of our customer success team here for a demo to gain a deeper understanding of how QuickReach's No-Code MRO Suite would be ideal for your procurement requirements and take your first steps towards building a digitally connected business.