The Potential in Procurement Tech

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Ciara Gumsheimer, Philipp Werner & Anirudh Bazari
July 08, 2024

👋 Welcome

Welcome to the 3rd edition of the Supply Chain Tech Newsletter and thanks to everyone who subscribed recently! Through this newsletter, our goal is to build an ecosystem of founders, operators, investors, and industry experts who share the same vision.

In this week’s edition we collaborate with Anirudh Bazari, a final year MiM student at London Business School. We worked with Anirudh on a research project into the Procurement Landscape, and were lucky to leverage his background in tea procurement! We discuss the increasing strategic importance of procurement within organisations, explain the typical steps in a procurement flow, and share area’s we are particularly interested in within ProcureTech right now. Read on to find out more…

The Potential in Procurement Tech

With supply chain disruptions representing a constant looming threat to organisations, companies are increasingly focussing more on optimising the strategic functions in supply chains, those which don’t just help with logistics, but allow these firms to maximise (or rather save) the pie like no other. The rising star within these ‘strategic functions’ is Procurement.

While boardroom priorities are moving toward enhanced resilience and improved sustainability, keeping costs low remains a key focus. In fact, according to the team at Deloitte, 59% of procurement leaders stated that procurement technology would create a "major difference" in performance. To an opposing (and surprising) end, 42% of decision-makers in the same research also stated that it would be more challenging to get internal funding for such tech.

What one could perhaps discern from the state of ProcureTech is that while it is an optimistic space to look at from a macro-lens, the same is scarcely true from the micro viewpoint. More procurement teams in companies are competing every day for the same limited resources firms are willing to expend, making ProcureTech an avenue wherein a select few have a lot to gain, and the incumbents, a lot to defend. The perfect environment to spark VC interest.

But what exactly is procurement?

Procurement and purchasing are terms often used interchangeablye, however, the process of purchasing is just a part of the larger procurement function. Procurement encompasses demand forecasting, sourcing, invoice vetting, and payments amongst a host of other operations. 

To explain further, here is what the typical procurement function would look like for a large retail brand:

Procurement Function at Retail Brand

As one can see, procurement begins much before the purchase order is actually sent, and is more data centric and strategic than the average consumer would expect. Now that activities such as supplier relationship and resilience management are also being attributed to the procurement function, we realise that the procurement function is a continual, iterative process.

The specific functions of procurement can be split into Strategic, Transactional, and Supporting, and we are seeing software solutions being built across all of these functions. Market incumbents like Coupa cover the entire value chain (Source to Pay), while many new companies are focussed on a smaller part, such as Scoutbee in Strategic Sourcing and Supplier Intelligence.

Strategic functions in procurement begin with need analysis and budgeting. This involves a thorough assessment of company requirements in collaboration with other domains like sales and marketing to define budgets and demands. The aim is to ensure that these needs align with the company's overarching strategy and can adapt to changing circumstances. Following the budget allocation, strategic sourcing involves seeking out potential suppliers, typically from a list of pre-vetted vendors. Selection criteria include considerations of price, quality, and service reliability. Negotiation and contract management follow sourcing, where competitive negotiation pinpoints the supplier that best meets the budgetary and qualitative needs. The final phase in strategic functions involves supply chain, sustainability, and vendor management, focusing on creating a resilient and sustainable supply chain by managing vendor relationships and adhering to new regulations.

Transactional functions kick-off with purchase request and requisitioning. After the strategic need analysis, procurement teams submit an internal purchase request, detailing specifications, quantities, and timelines for approval. This step ensures all requests are aligned with policies and budgets. Post-approval, a purchase order (PO) is issued to the chosen supplier, formalising the intent to purchase and establishing a legally binding agreement. Upon delivery, invoice checking is performed to verify that the invoice details match the purchase order and the received goods or services. If there are discrepancies, they are resolved to ensure billing accuracy. Finally, the payment is processed by the finance department, adhering to the contract terms agreed upon with the supplier.

Supporting functions are crucial but ancillary to the core procurement processes. Team collaboration and data optimisation focus on improving efficiency within the procurement workflow by breaking down internal communication barriers and leveraging data for better decision-making. This involves integrating advanced ProcureTech solutions to facilitate cost-effective purchasing. The function also encompasses external stakeholder management, which emphasises building robust relationships and communication channels with suppliers. This ongoing effort enhances supply chain resilience and vendor reliability, ensuring that the procurement process is not just about transactions but also about fostering enduring partnerships.

Why is ProcureTech gaining in strategic importance?

To begin with, the fact that most procurement teams are under-resourced strongly necessitates the uptake of ProcureTech. In one of Spend Matters’ interviews, a procurement professional mentioned: "We have a two-person team. My colleague spends 75% of his time on managing contracts … and connecting with Legal. Given the lack of capacity on our team, there is probably ~$20M of spend that we don’t review today."

This is not an outlier case. Procurement teams managing expenses exceeding $100M typically are not more than five people. This makes procedural automation a must for teams who need to focus more on getting the best deals (and less on invoice matching & reconciliation). 

Secondly, procurement is arguably the most effective way to add to a company’s bottom line. With procurement being the biggest cost driver for most firms, every $1 saved in costs is directly added to the bottom-line, while top-line increases don’t directly translate to an increase in profits. Some reports state that effective procurement can cause impacts up to even 20% on the bottom-line.

Lastly, amid growing geo-political uncertainty and large-scale supply disruptions, companies are turning to procurement to ensure continuous supply. Further, as the inclusion of Scope-3 emissions in environmental regulations looms (as discussed in our last newsletter!), companies are cognisant of not only ensuring that their procurement is sustainable, but also building better relations with the select few suppliers who would make these new regulatory cuts.

All in all, it is not surprising that ProcureTech has attracted some of the largest funding rounds in Supply Chain Tech in the past few years, such as Tacto’s €50M Series A, Pivot’s €20M Series A, Scoutbee’s $60M Series B, Archlet’s $10M Series A, Mercanis’ $10M Seed Round, and Keelvar’s $24M Series B.

What areas do we find particularly exciting?

With so much potential and many new companies popping up regularly, here are some of the areas we find particularly exciting at Project A. 

1. Automation, automation, automation (dare we say AI)

As markets are demanding efficiency (cost savings), the typically under-managed domains of tactical and tail spend are increasingly being discovered as sources of savings & process improvements. Further, procurement teams are looking to focus on the select few high-value deals, and automate the other relatively low-value ones. AI has recently made strides in efficient management of these domains by turning automation into ‘intelligent automation’; thereby making identification, negotiating and buying quicker and more efficient than it ever was.

Increasing volatility in markets are creating tailwinds for shorter-term contracts and spot buying; thereby necessitating automation in sourcing for most of the tail spend in companies. Increasing interdependence in global value chains will only boast the need for quicker sourcing processes in the future. Some exciting companies automating the sourcing process include Keelvar, Archlet, Mercanis, Fairmarkit, and Alpas.

Our investment in Pactum, which is tackling the issue of automating negotiations within procurement, is based on this thesis. 

2. Vertical B2B Marketplaces

Different industries have vastly different seller/buyer workflows and certain industries still procure via highly complex and intransparent, multi-step procurement processes. With multiple stakeholders and middle-men involved in these transactions, B2B marketplaces are in a prime position to become part of the ProcureTech stack. By sitting at the heart of all transactions, these companies are also leveraging data intelligence to optimise workflows and pricing. Some of the industries we are seeing companies do well in are Chemicals (Waypoint Commodities), Freight (Forto, Sennder, CargoOne), Metals (Metycle), Timber (Timberhub), Packaging Materials (Packmatic), or Construction.

Our recent investment in Metycle, a B2B marketplace for secondary metal recycling, is based on this thesis. With prior success in verticalised markets through our portfolio company Sennder, we are optimistic about these untapped industries.  

3. Sustainability and Risk Management

Procurement will have two additional North Star KPIs alongside spend savings: Sustainability (e.g. carbon) related savings and risk management robustness.

With supply chain regulation increasingly mandating supplier visibility and traceability even into scope-3 suppliers, a majority of companies will be looking to make more sustainable sourcing and procurement management decisions. Companies such as Ecovadis have become the norm in sustainability reporting, while others like CarbMee are developing technology towards effective sustainability data consolidation, along with insights. We covered sustainability tracking and reporting software extensively in our post on supply chain regulations.

Risk management is another core objective for procurement professionals to guarantee resilience. This involves proactive identification and remedying of supply chain risks such as labour unrest, natural disaster, or geopolitical threats as well as supplier-specific risks such as regulatory compliance, financial health, or cybersecurity. The lack of effective solutions from incumbents furthers opportunity for new players here. Proactive risk management will also allow for better supplier sourcing and qualification. Some interesting companies here are Scoutbee, Prewave, and RiskLedger. 

Finally, effective supply chain relationship management, including supplier collaboration and category management, will be key to continuous improvement and tracking of supply chain sustainability. Exciting companies here include Tacto, ProcureAi, and Sirius.

If you're building in any of these spaces or are keen to discuss, please get in touch!

💡 Interesting Reads

  • Uber Freight, Aurora launch autonomous program for carriers | Freightwaves

  • Doordash held talks with UK's Deliveroo on takeover, sources say | Reuters

  • Amazon To Launch Temu-Like Discount Section With Direct Shipping From China | The Information

  • Japan plans conveyor belt that can move 25,000 drivers’ worth of freight a day | SCMP

  • Robots, Drones and Driverless Tractors Usher In New Age of Farming | Bloomberg

  • Europe to Hit China With EV Tariffs That Its Own Automakers Oppose | Wall Street Journal

  • Briefing: Supply chain & logistics (2024) | Sifted

  • Target’s Supply-Chain Chief Turned to Stores to Answer the Online Fulfillment Challenge | Wall Street Journal

  • Drone Delivery’s Next Challenge Is How to Clear Cost Hurdles | Wall Street Journal

💸 Funding Rounds

  • Vienna-based Prewave raises €63 million Series B to deliver supply chain superintelligence for compliance | EU-Startups

  • Hive Technologies raises €28.2M for operations platform expansion | Tech EU

  • Digital Iron raises $2m for heavy machinery after-sales platform | Businesspost

  • shipzero raises €8 Million | deutsche-startups

  • Orca AI secures $23m investment boost after North Standard collaboration | FinTech Global

  • Coboworx secures €11.4M to provide robotics to SMEs | FinTech Global

  • Droppe Raises €3.9M in Funding | Finsmes

  • EthonAI secures €15.3M Series A for AI-Driven manufacturing analytics | Tech EU

  • Qargo raises $14M to digitize and decarbonize the trucking industry | TechCrunch

  • Ship Angel raises $5M, launches two new products for BCOs | Freightwaves

👷 Jobs in the Industry

Interested in working in Supply Chain Tech? Here are some startup-ups and scale-ups hiring across a variety of roles:

✍️ Want to contribute?

As we grow the Supply Chain Tech newsletter, we are keen to get as many people involved as possible! If you’re interested in supply chain topics, and want to help us spread the word on this exciting space, please do get in touch. We’re always looking for guest authors and collaborators.

Supply Chain Tech Newsletter Team

Philipp Werner is an operator turned investor and Partner at Project A. He specialises in investing in global supply chain technology and serves on the board of directors of related companies like Relay, Metycle and Enapi. Philipp also launched the Project A Studio, partnering with founders at the pre-idea stage, and previously worked hands-on with 25+ VC-backed startups including Sennder, Trade Republic, and Spryker. 

Ciara Gumsheimer is an Associate at Project A covering global supply chain technology and climate technology, with a particular interest in vertical and sustainable supply chains. Prior to joining Project A, Ciara worked at a FinTech startup in Berlin, after completing degrees at the University of Cambridge, UC Berkeley, and EDHEC Business School.

Project A Ventures is one of the leading early-stage tech investors in Europe with offices in Berlin and London and we are early backers of the logistics unicorn Sennder. We have invested in  some other notable companies in Global Supply Chains, such as Pactum, Metycle, and Relay. In addition to $1bn assets under management, we provide our portfolio companies with exclusive operational support by our team of 100+ in-house experts including all areas from Tech and Product Development to Talent Acquisition and Marketing. Other notable portfolio companies include companies such as Trade Republic, KRY, Spryker, Voi, Catawiki, and WorldRemit.