As companies apply digital transformation to the enterprise, many executives are surprised at the impact on procurement. Indeed, typical procurement organizations can substantially narrow the gap between their cost levels and that of top performers, and top performers can become even better by leveraging digital transformation, according to new research.
Consider, for instance, that “world-class” procurement organizations operate with 22 percent lower labor costs than their peers, and have 29 percent fewer staff, while demonstrating improved effectiveness and better performance across a number of key metrics, according to world-class procurement research from The Hackett Group. For a typical company with $10 billion in revenue, attaining world-class performance in procurement can represent as much as $6 million in potential annual functional cost savings, the research firm explains. World-class procurement organizations also generate more than twice the ROI of typical procurement organizations—generating more than $10 in savings for every $1 of procurement operating cost.
The research also found that in addition to reduced cost and fewer staff, world-class procurement organizations are significantly more effective than their peers in how they operate and deliver services. For example, transactions require discrepancy resolution two to three times less often, and annual procurement staff turnover is also 45 percent lower—an indication that staff are given opportunities for professional growth, the research shows.
The firm’s research identified six digital accelerators necessary to improve an organization’s procurement performance and support business strategy over the long term: digital tools to enhance customer engagement; robotic process automation to perform rules-based activities; the use of big data and advanced analytics to drive insight and bolster decision making; cloud-based applications; digital workforce enablement to maximize productivity; and the use of cognitive computing to simulate human thought and increase the ability of a procurement organization to run models, make predictions and analyze large data sets.
“Technology has always played an important role in enabling performance, but procurement has reached an inflection point,” says Christopher S. Sawchuk, a principal & global procurement advisory practice leader for The Hackett Group. “Today, digital business tools are converging with employees and consumers who are increasingly comfortable with new mobile technologies and business models. This has created tremendous opportunities for procurement organizations to transform service delivery, reduce errors, make information easier to access and even deliver a whole new class of services.”
I was also interested to see that the firm’s research indicates e-sourcing software can cut overall cycle time by 30 percent, and that use of contract lifecycle management software can reduce the time required to find a contract by nearly half and reduce the number of lapsed contracts by nearly 40 percent. That said, Robert Derocher, a principal at The Hackett Group, also explains that the use of technology alone will not deliver results.
“[Technology] must fit within a larger strategy, one based on a well-designed service delivery model that looks at not just technology, but also processes, information, talent and organizational redesign,” Derocher says. “But the promise of digital, in the context of a well-rounded transformation effort, is tremendous.”
What are your thoughts on digital transformation? Specifically, do you think some companies place too much of an emphasis on technology and consequently neglect other parts of the overall digital transformation strategy?