Digital transformation is making it easier for procurement organizations to “do more with less,” according to newly-released Procurement Key Issues research from The Hackett Group, Inc.
But there is still significant need for procurement to address its critical development priorities for 2019, including: improving analytical capabilities, aligning skills and talent with business needs, leveraging supplier relationships, enhancing agility, and achieving true customer-centricity.
The Hackett Group also found that procurement organizations are showing a renewed and expanded focus on strategic sourcing and spend management in response to concerns over economic uncertainty, increased competition, and global trade issues.
Digital transformation is beginning to have a significant impact on procurement organizations, The Hackett Group’s research found, with 30-40 percent saying it has had a high impact in achieving enterprise objectives, enhancing performance, optimizing the service delivery model, and addressing roles, skills profiles, and needs. Over the next two to three years, procurement organizations expect the impact of digital transformation to dramatically increase, with key areas like robotic process automation and advanced analytics seeing particularly high adoption growth rates (2.3x and 60 percent, respectively). Broad adoption of e-procurement technologies is also expected to grow by nearly 2x.
Procurement expects its budget to grow at a much slower pace this year than in 2018 (1.3 percent, versus 2.7 percent last year). Procurement staffing shows a similar trend, with 0.9 percent growth expected, versus 2.8 percent in 2018. With revenue growth expected to increase from 5 percent in 2018 to 5.7 percent for 2019, this creates significant productivity and efficiency gaps that procurement organizations must overcome.
Procurement has aggressive plans to increase its use of digital tools and procurement-specific technologies over the next two years, the research found. Procurement will invest heavily in cloud-based business applications along with several data management technologies: data visualization (where adoption rates will rise by 24 percent), master data management (57 percent adoption growth), and advanced analytics (60 percent adoption growth). Spend optimization analytics and dashboarding adoption rates are expected to grow by 61 percent. Broad-based adoption of e-procurement technology is expected to grow by nearly 2x.
Use of mobile computing and robotic process automation (RPA) are also expected to rise dramatically, indicating a focus on more efficient, agile processes across the procurement lifecycle. RPA sees the highest adoption growth rate among digital technologies, at 2.3x. While RPA is primarily being used for procure-to-pay processes at present, there are a range of other procurement areas that can benefit from automation of repetitive work, including updating of vendor master files and electronic auction setup.
Procurement-specific technologies are expected to become far more broadly adopted over the next two years, with nearly universal adoption of e-procurement, spend optimization analytics, and supplier relationship management systems, and just slightly lower adoption rates for e-invoicing and contract lifecycle management. This represents a major shift toward customer-centricity, designed to enable organizations to simplify and streamline processes, and improve agility.
The research found that procurement’s 2019 actual transformation focus is poorly aligned with what should be its critical development priorities; i.e. areas identified as of critical importance, but with very limited ability to address. Among those, development of analytical capabilities is a transformation focus for about half of procurement organizations. Modernizing application platforms is another top transformation focus, and is a key way to achieve simplification due to the complexity of many legacy environments. Consolidating multiple legacy systems is also a critical step towards to improving data management and analytics.
But of the other critical development areas, less than a third of all procurement organizations have a major initiative in place to improve skills and talent with business needs, and even fewer said they intend to work on agility or focus on improving customer-centricity and supplier relationship management capabilities.
Procurement is also focused on its role enabling the enterprise in 2019, with an array of priorities that include elevating their role as a trusted advisor, continuing to reduce purchase costs, improving stakeholder satisfaction, and enhancing agility.
“Procurement organizations are clearly making investments in digital transformation and are seeing real benefits. The focus on improving analytics for 2019 is particularly encouraging. But the laundry list of critical areas where they have very limited ability to make improvements is very disconcerting,” said The Hackett Group Principal & Global Procurement Advisory Practice Leader Chris Sawchuk. “Despite the fact that procurement knows what it needs to do, it’s simply not fully translating into an effective plan of action. Procurement must become fully dedicated to advancing its capabilities in analytics, customer-centricity, agility and more, while also investing in the right talent to help lead those changes.”
In an interview with Supply Chain Management Review (SCMR) —a sister publication— he added that he was surprised to see the degree to which procurement organization placed importance on the development of their organizations analytical capabilities.
“I firmly believe that this capability is critical and I was surprised by the speed as well as intensity to procurement organizations agree,” said Sawchuk. “It was a pleasant surprise. It was also good to see that they are putting their money where their mouth is…and also investing in it, which can’t be said for the other critical development capabilities.”
According to The Hackett Group Research Director Laura Gibbons, “Failing to address the five critical development areas poses a significant risk. For example, we see skills & talent as a particularly critical risk factor. Procurement has begun to truly invest in digital transformation, but if it doesn’t have the right people in place, digital tools could end up being misused or wasted. You need the right people, with the right skills in place, to take full advantage of what digital transformation can offer.”
She told SCMR in an interview that most of what she saw in this year’s Key Issues research “was about what we would expect.”
“ However, organizations’ inability to address both agility and customer-centricity does come as a bit of a surprise,” she said. “These are topics that have been front and center for the past few years so procurement organizations are well aware of their importance. To be successful here, it requires a substantial shift in the way the organizations operate: a shift in priorities, vision, technology, talent and skills. There’s a lot to be done to achieve success and that puts organizations who aren’t ready to fully commit in a tough place.”