Hackett finds stark differences in typical digital procurement use vs. world-class digital transformation

Digital transformation is impacting businesses all around the globe, with procurement functions in particular feeling the pressure to redefine their role within organizations.

While some procurement professionals are still working to increase their percentage of spend under management and generate savings at a tactical level, the recently released World-Class Procurement: Redefining Performance in a Digital Era report from The Hackett Group highlights significant gaps between how a sample peer group of procurement departments operate and perform versus the top performing departments, or world-class procurement operations.

The customer-centric and strategic focus of this top performing group has generated crucial changes in their performance, the study says. Top performing procurement professionals report influencing over 90% of spend within their organization, compared to 64% reported by the peer group.

Perhaps even more importantly, nearly 70% of RFIs were handled electronically by top performing organizations, compared to just 35% among the peer group. Responding quickly and intelligently to advances in digital capabilities have enabled top performing departments to achieve excellent execution in the areas they have traditionally focused on while also allowing them a greater say in the strategic planning stages of business development, the study says.

This has helped shift procurement professionals from being viewed as gatekeepers and administrators by many stakeholders to being seen as valuable partners in the business, the study said.

Measuring Success

The Hackett study found that a key element of top performers success was leveraging new metrics of efficiency, effectiveness and experience in relation to delivery of services to stakeholders.

One passage characterizes its findings like this:

“World-class procurement organizations leverage technology to support enhanced business performance. Optimized processes and greater automation enable world-class teams to minimize error rates across sub-processes. Using a more integrated system and leveraging new tools like cloud and smart automation, world-class organizations minimize the need for human intervention in routine, rules-based processes, for example, by avoiding the need to manually rekey data from one system into another. Fewer handoffs mean fewer mistakes. Choices like these are the reason world-class procurement influences 93% of spend versus 64% for more typical organizations (i.e., the peer group) and generate 75% more savings.”

The study goes on to say that elements of digital transformation positively impact effectiveness by reducing errors and taking manual input or activities out of rules-based operations. All of these changes translate into a greatly improved customer experience. Streamlined processes and reduced time spent on routine tasks allow procurement professionals more time to thoughtfully and strategically plan their processes to best serve internal customers.

The Hackett Group notes that advanced digital transformation has led to stronger business relationships where customers and stakeholders see procurement operations as important business partners, and the reverse where digital transformation lags behind. Under 20% of stakeholders in the peer group reported seeing procurement departments as “procurement experts,” while nearly 50% of the top performing group’s stakeholders saw them that way.

Moving Up the Strategic Chain

With substantial resources made available through the implementation of digital transformation, procurement professionals are moving further up the chain of strategic planning and risk management.

The Hackett Group identified designing services to meet the needs of the organization holistically, instead of responding to siloed needs of individual departments. This process involves developing tools that function across the business, like corporate procurement and self-service portals that allow stakeholders to manage their low-level needs in a structured way while still providing them access to procurement professionals when the need arises.

The effective use of data in analysis and planning will also be a crucial function of procurement departments, allowing them to identify risks and opportunities for process and purchasing improvements while providing better guidance overall for strategic purchasing decisions within the business.

The Importance of Service Partnering and Human Capital

The Hackett Group identified service partnering, or the development of strong relationships with external business partners like offshore providers of procurement services, as a key driver of better business performance.

Some areas of spend on service partnering were significantly different between top performing procurement departments and their peer group counterparts. Supplier management and development received four times the percentage of spend from top performers than from the peer group, and sourcing execution received three times greater spend percentage. Both of these outsourcing elements are grounded in strategic sourcing, a vital evolution of sourcing processes in any successful procurement department.

Spend Matters examined the topic of strategic sourcing in more depth in a series of articles focused on maximizing the value if any purchase.

The Hackett study finds that in addition to investing in the strategic capabilities of procurement partners, the last piece of the puzzle for a high functioning procurement department is finding, retaining and training top human capital to meet existing needs and grow alongside the business. To this end, top performing procurement departments are using rotational programs to give employees a deeper understanding of the broader components of the business and providing training to employees in data analysis to enhance their strategic planning capabilities.

The Hackett study lists these critical action items for most procurement departments:

• Review KPIs and take action where improvement is needed.
• Put “customers” — other departments and levels of management — at the center of service design.
• Use digital technology to increase productivity and improve the customer experience.
• Build analytics capabilities.
• Develop procurement’s data savviness.
• Increase procurement’s business acumen.