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Digital Transformation Drives Top Procurement Operations, And Can Help Late Adopters, Report Finds

12/13/2018 By

World-class procurement organizations have achieved enormous advantages through automation and the adoption of technology solutions, according to a new report on digital transformation from the Hackett Group.

The 2018 benchmarking report from the research organization found that top performers, thanks to their digital transformations, have 21% lower labor costs and 29% fewer full-time equivalent staff than more typical organizations (what Hackett calls the “peer group”).

For this reason, the authors of the report proclaim that procurement is now at an inflection point: While technology has always been effective at helping procurement increase efficiency, “world-class organizations can continue to reduce costs by embracing digital technology, while the peer group can leverage the same technology to catch up faster at less cost.”

According to the research, an organization with $10 billion in annual revenue could potentially achieve $6 million in annual savings. And while the return on investment (the ratio of total savings generated by procurement to its total operating cost) for procurement in the peer group is 4.7x, for world-class procurement it’s more than doubled at 10.7x.

What Does Digital Transformation Mean?

Hackett notes that all world-class procurement organizations have undergone “digital transformations,” defined as “improving customer experiences, operational efficiency and agility by fundamentally changing the way business services are delivered, using digital technologies as the enabler of holistic transformation.” In other words, it isn’t simply a matter of automating some processes or adopting a single solution for a single purpose. Instead, it’s about wholesale change, adopting technologies like predictive analytics and even artificial intelligence.

From a more philosophical perspective, however, digital transformation means adopting technology with a customer focus. Whereas past technologies may have enabled efficiencies internally or between enterprises, Hackett considers world-class organizations those that have adopted technologies that allow for greater engagement with internal and external customers, including cloud-based tools and portals that allow for a more interactive experience for customers.

The Digital Transformation Imperative

The numbers say organizations in the peer group must now follow the world-class practices and achieve their own digital transformations. The report notes that such a transformation spreads throughout the entirety of an organization. Retention rates at top organizations are higher, and organizations see two to three times fewer errors that require resolving later.

As the report states, it’s now become more affordable for smaller organizations to catch up to top performers. And rather than the typical, lengthy process for rehabilitating a behind-the-times procurement function, the authors argue it can happen quickly: “Traditionally, procurement transformations began with process redesign, and only later identified the right technologies to enable the new processes. Digital transformation turns this model on its head by first looking for opportunities to use new technologies. Then they are used to create new processes that are customer-centric and efficient, and permit step changes in performance.”

Rather than overhauling everything, Hackett recommends organizations identify single, well-defined objectives and find the right technology to help them achieve those directives. The report recommends six “digital accelerators,” like robotic process automation (RPA) and analytic-driven insights, where procurement organizations can get started. Other accelerators include digital engagement, meaning that the world-class organizations’ procurement technology is service-oriented and customer-centric; modern digital architecture, like the latest software tools; digital workforce enablement, meaning the use of apps that connect your workers and foster collaboration; and cognitive computing and artificial intelligence, which can crunch massive amounts of data and make predictions.

As the authors write, digital technologies evolve quickly, but “stasis is not an option.”