As CPOs and supply leaders know, current business conditions make it challenging to provide services efficiently and effectively. Recognizing this, new benchmarking research by The Hackett Group, The World-Class Performance Advantage: Five Imperatives for Creating Greater Procurement Agility, finds procurement must continously transform its model “to respond with agility to shifting demands and opportunities.”
According to the research, world-class procurement organizations have lower operating costs and operate with smaller teams while generating more than twice the return on investment than typical companies. Still, they must find new ways to continue to add value.
World-class procurement organizations are investing in new technology, outsourcing tactical activities and working to recruit and retain talented professionals. Going forward, there are five imperatives for improving procurement’s performance and supporting the business strategy over the long term. These are:
Catching up with My Purchasing Center recently, Chris Sawchuk, Principal and Global Procurement Advisory Practice Leader, and Robert Derocher, Principal, Sourcing and Procurement Practice Leader, at The Hackett Group, looked closely at two of the imperatives—embrace digital transformation and re-skill procurement—and posed some questions for procurement professionals.
Not surprised by the findings, Sawchuk says the procurement leaders he works with are being asked to do more with less and trying to figure out how they will do that. As he sees it, there has to be an accelerator, and that accelerator is technology.
Agreeing, Derocher adds, “Digital procurement is one way to get more productivity out of the same resource pool.” As such, procurement organizations are beginning to turn to a technology called robotic process automation which can be applied to the procure-to-pay process. “There are some transactions we can automate in a human-less way, if you will,” he says.
Sawchuk says RPA, with its cost and productivity differential, could have a significant impact on the labor force, yet may not have a long life span with other technologies soon outplacing it.
He looks to social media to cause disruption, allowing procurement to collaborate more effectively internally, and suggests what colleagues in sales are doing today—“listening to social media chatter to get insights into what customers are thinking of products and services and quickly responding” as having applications in procurement. For instance, procurement organizations can use social media to look at such early indicators of supplier performance as how well they are doing for other companies. Procurement organizations are also using video conferencing with suppliers.
“As we pull together technologies that connect partners and customers and provide rapid transparency, we are not going to have to predict demand anymore,” Sawchuk says. “It is going to be instantaneous.”
That said, procurement organizations are going to have to think about what they do and reimagine it in a digital world. That begs the question, does procurement have the skillset to do this?
This is one of procurement’s biggest challenges, Derocher tells My Purchasing Center. Some procurement organizations struggle with the basics. Others are investing more in training and development. Still, many don’t have capability to reimagine the function digitally. What's more reimagining it on paper is one thing. Putting the design into reality is another.
Sawchuk looks to the Millennial generation to help push procurement to reimagine itself digitally. Accustomed to collaborating, Millennials are surprised when they begin their first jobs to learn the organization is siloed and not comfortable with the concept of collaborating. He suggests procurement leaders use reverse mentoring techniques to learn about Millennials’ experience with collaboration.
Derocher says Millennials also are accustomed to buying experiences that resemble those of Amazon and view organizations with manual paper-based processes as “backward.” The good news, he says, is that “many organizations see their customers are getting younger and have totally different expectations." As a result, procurement organizations are creating purchasing processes that resemble those of Amazon.
Taking such “guided buying” a step further, Sawchuk says that Amazon is “redefining spend influence," meaning that procurement organizations may find it beneficial to use open marketplaces for their “tail spend” rather than architect a preferred supply base. The question here is: Where will procurement organizations draw the line between what they focus resources on and what they divvy out to platforms?
Going forward, the researchers suggest CPOs watch for potentially disruptive technologies in the marketplace and figure out how to apply them in their environment. Sawchuk says, “Disruptive technologies are going to accelerate and permeate the organization.”