Beyond savings: How procurement departments can digitally transform and elevate to world-class status

Business competition across industries is intense, so companies are looking to their procurement departments to increase capabilities, become even more efficient and save money. To meet those demands, many are turning to technology, seeking ways to implement digital transformation. While few organizations have fully made the shift to digital, many are taking steps to move their departments forward.

A recent webinar, “World-Class Procurement: Redefining Performance in a Digital Era,” sponsored by the business spend management experts at Coupa and presented by Amy Fong, senior procurement adviser and P2P program leader at The Hackett Group, looks at current research data and where it situates procurement departments now and into the future. The webinar grew from the 2019 Hackett Group report of the same name, where procurement executives were asked about their views on trends impacting their departments and how they see their futures. (Read our article on the report here.)

While today’s procurement departments are still tasked with finding cost-savings, Fong said savings alone are no longer the primary driver. Meeting the needs of customers, both internal stakeholders and external clients, is quickly rising to the top of the list. In previous years, The Hackett Group found that efficiency and effectiveness were the top performance metrics, but in the recent report, customer experience is now an equal factor.

“We need to customize our products and services in a much more stakeholder/customer-centric way,” Fong said.

For procurement departments of the future to remain competitive, they must face the fact that there really is no choice but to change. There are many forces propelling that change, Fong said, including a digital imperative, intensifying competition, disruptive innovation and a focus on the customer.

Society and business are driving the agenda, she said, with purpose, regulation, value, innovation and security atop the agenda. To meet those demands, procurement needs to focus on using digital tools, incorporating agile thinking, and using more advanced analytics and performance measurements. Otherwise, companies will be hard-pressed to keep up.

So how do procurement departments make the shift? For Fong, becoming a customer-centric program with a clear understanding of value is key. The digital imperative is driven by competition and innovation, creating different expectations.

Three components go into change: resetting the culture, digitization and defining value. Culture change happens when procurement talent is retained and developed with education on the digital transformation. Digitization should be pointed outwardly, looking at customer needs in addition to internal automation.

Fong believes that defining value is one of the most important exercises to be undertaken. It has to take on an external focus, she said, which starts with customers and other stakeholders outside procurement.

“Customer objective should be built into your supply management/procurement scorecards,” she said.

Segmenting stakeholders is important because at any company there can be up to six categories, all with different needs.

“For category managers, it gets quite tricky,” she said, “because the answer is going to be different for every stakeholder, and this is where we need to change our behavior.”

Fong’s six stakeholder categories are:

  • C-suite
  • Suppliers
  • Procurement team
  • Requisitioners
  • External customers
  • Budget owners

And savings is not always a top priority, she said. To determine what matters and to whom, ask questions to understand the specifics for each category, then build scorecards once parameters are established. Stakeholder satisfaction is fundamental.

There are phases of value evolution, and embracing an evolving approach will allow procurement to provide speedy and customized solutions, become more agile, and operate with better insights that generate predictive, instead of the more traditional reactive outcomes. Traditional value metrics like spend/cost reduction and operational improvement aren’t enough to meet today’s customer demands. A modern approach incorporates supply risk reduction, strategic cycle time reduction and stakeholder experience, giving companies at this stage a distinct advantage.

Companies incorporating emerging best practices offer M&A and supplier innovation enablement, non-procurement employee satisfaction and corporate social responsibility (CSR) components. Fong offers a number of specific examples in the webinar, highlighting supplier-enabled innovation as a game-changer for both sides.

“We need to be able to drive innovation from our supply base, and this is where we can help businesses differentiate in the market,” she said.

For this to work, she added that procurement needs to give suppliers a forum to bring innovative ideas, then practice listening to those ideas with the right people in the room.

Becoming world-class is a process — it takes a holistic approach, an investment in technology and employee education and a commitment from all stakeholders. Broadened definitions for metrics that grow out of customer centricity allow companies to augment, not replace current value definitions. By doing this, Fong reminds, savings will still be on the scorecard but becomes a smaller percentage of total value companies deliver for their customers.

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