Purchase strategies, especially those in long-term business plans, are frequently scrutinized by private equity (PE) firms. The organizational structures of private equity firms are such that procurement executives are actively encouraged to chase suppliers that are generous with offers of price reductions and discounts.
However, private equity firms are increasing their use of automated technological solutions, which have shown potential for increasing EBIDTA (Earnings before interest, tax, depreciation and amortization) by a margin of roughly 20%, all within six months after installation.
Given the business advantages that automated tech solutions can provide, it is easy to see that the proper implementation of technology might assist private equity firms in trapping opportunities that will, in all likelihood, change the way management teams handle procurement.
Effective incorporation of digital solutions enables an overhaul of procurement performance by factoring in transparency to monitor procurement process expenses, tagging procurement targets with value-creation probability and rationalizing such value-creation through technological means.
Historically, mid-sized private equity firms have struggled to identify the best areas in which they should invest money in order to better their operations. Incomplete data and uncorroborated information have been major roadblocks for private equity firms when it comes to determining these thresholds for expenses.
Mid-scale private equity firms have foregone improving their expense insights, largely due to the reservation that those insights would siphon funds away from IT investment, as well as take up too much time. The latest automated technological solutions, however, are debunking these long-held apprehensions by exposing irregularities in PE expenditure weeks after implementation.
Working in tandem with existing tech infrastructure, automated tech solutions pull data from multiple sources, be it internal or external, to present precise and clean expense data for management to analyse.
The utilization of automated tech solutions allows procurement executives to cherry pick opportunities based on the expenditure data. This further provides insights into pricing inconsistencies across several departments, together with the identification of areas where expenses are out of control. Armed with such insights, procurement executives can design cost-effective manoeuvres to transform purchase operations in private equity firms.
Kowledge and insight are crucial for procurement executives. Once the business areas with mounting expenses are identified, private equity firms can adjust their business plans to mirror their expenditure goals, subsequently maximizing their EBIDTA margins.
Traditional measures such as extending requests for proposals (RFPs) and re-vamping supply chains have yet to have a reliable material effect on EBIDTA margins. In order for private equity firms to have complete control over their EBIDTA potential, they must look beyond the lure of pricing models. Avenues related to product design, raw-material provisions, usage and demand, and statistical methods have the potential to create more value.
Through the implementation of automated tech solutions, procurement executives can open the door to more possibilities for procurement targets and savings ambitions. Some of the feature-rich solutions that are being deployed by private equity firms are:
1. E-cleansheet solutions, 3D printers and design-to-value solutions - Tactical hiring by hedge funds and PE firms has allowed managers to locate fresh talent with a high lifetime value. This has been made possible due to the decentralized nature of operations. 57% of the managers surveyed reported that they were either hiring or on the lookout for new talents since the onset of COVID-19.
2. Back-office automation solutions - Tactical hiring by hedge funds and PE firms has allowed managers to locate fresh talent with a high lifetime value. This has been made possible due to the decentralized nature of operations. 57% of the managers surveyed reported that they were either hiring or on the lookout for new talents since the onset of COVID-19.
Automated tech solutions such as Resolvr have proven useful in helping private equity firms to reduce risk, improve internal and regulatory compliance, lower cost of operations, improve inter and intra departmental communications, and create greater visibility to control the expenditure of money and time.
optimizing operation by eradicating the need for manual processes, ensuring compliance with the Dodd-Frank Act, offering complete interoperability to facilitate integration with existing firm software through APIs (Application Programming Interface), replacing human inefficiency, etc.
Apart from the above-mentioned solutions, by accessing other tools such as e-RFPs, e-catalogues, and e-auctions, procurement executives are better placed to reach out to more vendors and carry out negotiations far more proficiently in comparison to pursuing the vendors manually.
In a competitive industry such as private equity, automated tech solutions are enabling private equity firms to strike more transparent vendor deals in few weeks, if not days. This is in stark contrast to the years taken to negotiate such deals using manual processes.
Automated technological solutions have the capability to optimize private equity finances, but for that to happen, firms must pair up automated tech solutions with ambitious business aspirations, technological prowess among employees, and proper execution of business guidelines.
Ambitious business aspirations can come into play for private equity firms once cost-effective policies have been curated using automated technological solutions. PE investors should give due attention to procurement savings, which can be realized with automated tech solutions.
Setting lofty business goals often translates into increased organization-wide productivity and performance. Moreover, by setting the bar high, employees can be challenged to venture out of their comfort zones, thereby aggregating a collaborative culture throughout the firm. It is vital that C-suite professionals support their business objectives and dedicate their skills to both encouraging and backing their departments.
Consistent progress awareness will ensure that management is able to make prompt business policy decisions. To sustain the business momentum shaped by automated tech solutions, constant dialogue and communication with all stakeholders is essential
Bearing in mind the nature of the private equity industry, where firms are competing to outdo each other so they can stand out in the eyes of investors, the transformation of procurement strategies can prove to be the vital difference between those that make the investment cut and those that fall short.
Procurement initiatives are fast tracked by automated technological solutions, and can provide the stimulus needed for private equity firms to improve their EBIDTA margins and add value across various departments.
If expense allocation software (or spend management software) could help your hedge fund or private equity firm, get in touch with us to learn more about what we offer. We can set up demonstrations, trials and complimentary consultations to see if Resolvr fits your fund's requirements, with no strings attached.