Turning Industrial Procurement Into A Well-Oiled Machine

It’s become a cliché too often heard today in the B2B space: Procurement should evolve into an experience that mirrors a consumer shopping online at Amazon. But in the race to offer that B2C Amazon-like experience to business-to-business players, the eProcurement technology space may be overlooking some key differentiators that corporate buyers and suppliers need addressed.

In industrial spaces like the oil and gas sector, procurement is no straightforward process. Complex parts, product performance demands and the need for buyers and suppliers to engage in contract and pricing negotiations means an “Amazon-like” experience may seem attractive, but is indeed far from what this industry truly needs.

In a recent interview with PYMNTS, Tim Neal, CEO of GoExpedi, which provides B2B eCommerce and procurement solutions for the industrial and energy maintenance, repair and operations (MRO) sector, certainly sees a connection between the need to innovate industrial procurement and the impact Amazon has made on the online shopping space – though it’s not exactly the comparison the B2B sector has been hearing repeatedly over the years.

“You have to look at the book seller market before Amazon,” he said. “You have Barnes & Noble, Borders and regional bookstores. There was no technology, big physical storefronts, a heavy inventory burden – that’s what this market is.”

Procurement in the industrial oil and gas sector is “antiquated,” Neal said, involving brick-and mortar, mom-and-pop stores, “a couple big players” and a slew of inefficiencies that force industry players to rely on phone calls and PDF document exchanges to buy and sell complex equipment and parts to conduct business.

That’s in stark contrast to the “front office” operations of the sector, according to analysis by DNV GL, an oil and gas industry advisory firm. The company published a report in 2016 into the sector’s digitization journey, finding that efforts to address a “cost crisis” have had far-reaching, long-lasting effects on the oil and gas industry’s technology adoption habits that are likely to last well into the future.

“While the industry is understandably preoccupied with generating shorter-term value, we must also keep an eye on where longer-term value and permanent efficiency gains can be achieved,” said Elisabeth Tørstad, CEO of DNV GL – Oil & Gas, in a statement at the time. “Innovation is not just about finding the breakthrough technologies, although that is important too. It is also about making things simpler and more efficient, and ultimately helping the industry to safely cut costs.”

Neal agreed that today, the oil and gas sector has seen a boom in technological innovation on the front lines. Unfortunately, back-office operations, like procurement, haven’t quite caught up with that digitization mindset the industry enjoys in the field. What that means is room for “big inefficiencies,” he said, including wasted time searching for and buying parts and supplies, human error and a lack of transparency into business operations, spending and parts performance.

One of the largest drawbacks to this lack of digitization is the inability for businesses in the space to gain insight into how much they’re spending, the effectiveness of procurement spend or other financial metrics.

“The current status quo of the industry is doing orders over the phone and email, so you get PDF quotes,” explained Neal. “There is no real transparency into where expenditure lies.”

Everything from understanding how much a business spends on globes to identifying fraudulent transactions is lost in the shuffle of paperwork, even if those documents are digital.

Supporting digital spend analysis and other value-added features in GoExpedi‘s platform is part of the company’s efforts to digitize what has, until now, been a wholly manual process for many businesses in this sector. While the company’s solution is designed for this industry, offering tools like interactive product schematics and product suggestions, the industry’s lack of digital procurement means there is still a long way to go to truly transform this field.

For instance, while GoExpedi can support credit card payments on its platform, the firm is still working on adding ACH and wire transfers, which are preferred by larger enterprises or in cases of larger procurement deals. There is also room for improvement in the buyer-supplier communication and negotiation space, which still remains largely offline.

“That’s definitely something that’s needed in this space, from the human capital efficiency perspective, but also a workflow management perspective,” Neal said, highlighting the opportunity for enhanced transparency and easier access to data related to invoices and payment.

Tackling these various pain points is about addressing a larger issue for the oil and gas sector, he continued: the gap between upper-level executives, and the professionals buying and using these products. Neal described this as a “blue collar-white collar” gap that not only prevents professionals from more easily procuring what they need, but also bars chief financial officers and other executives from gaining the bird’s-eye-view metrics they seek to promote operational efficiencies across the enterprise.

“Through technology, we’re able to make sure the blue collar operational front gets the right parts they need and aren’t spending a burdensome amount of time procuring,” Neal said. “At the same time, the white collar corporate office gets the transparency into asset-by-asset performance, and looking at metrics on how they can evaluate expenditures of assets.”