Procurement can see improvements through digital technology: The Hackett Group
MIAMI & LONDON – By embracing digital transformation, procurement organizations can achieve better efficiency, effectiveness and customer experience, according to new Digital World Class procurement research from The Hackett Group, Inc.
Those results include 25 per cent lower cost, two-and-a-half times greater procurement ROI and more, the research says.
Key research findings include:
Greater Efficiency – Digital world class procurement organizations demonstrate their operational excellence in the form of greater efficiency. They now operate at 25 per cent lower cost than typical procurement organizations and 6 per cent lower cost than traditional world-class procurement organizations, despite having greater spend on technology. For a $10 billion company, this represents procurement cost savings of $6.9 million and $1.3 million, respectively. Over the past decade, the cost gap between world class and peers has widened slightly, and in 2021, it has grown even wider. Digital World Class procurement organizations also employ 33 per cent fewer full-time equivalent (FTEs) than peers per billion dollars of revenue. The gap is even greater for operations and compliance management FTEs (57 per cent), enabling them to deliver those processes at 55 per cent lower cost.
Enhanced Effectiveness – Elite procurement organizations are also able to deliver greater business value in the form of higher-quality services – better stakeholder engagement, supplier relationship management, and product innovation. Compared to peers, they have two-and-a-half-times higher procurement ROI and 25 per cent more spend influenced or managed by procurement. They have 70 per cent more FTEs in strategic roles like product development support, and 15 per cent more FTEs in supplier partnering. Technology helps achieve these results, with Digital World Class procurement organizations spending 20 per cent more than peers on technology as a percentage of spend. They also invest in emerging technologies like smart automation, advanced analytics, and collaboration tools to reduce labor costs.
Improved Customer Experience – The greater business value that Digital World Class organizations provide also extends to stakeholder experience – they have a performance edge over peers when it comes to customer perceptions. They are 85 per cent more likely to be viewed by stakeholders as taking a proactive approach to supply risk mitigation and 19 per cent more likely to be considered a valued business partner. In addition, they are nearly seven times more likely to be viewed as having effective business knowledge skills.
Six Areas of Excellence – Technology enablement is at the heart of the Digital World Class performance advantage. However, to fully unlock the potential of technology, leading procurement organizations also focus on five other critical levers: data and analytics; technology architecture; operating model evolution; end-to-end process design and ownership; and talent. The research provides details about Digital World Class performance in procurement in each of these areas. For example, in data and analytics, the pandemic has led to new urgency in improving procurement’s data management practices, and Digital World Class procurement organizations have a significant head start. Digital World Class procurement organizations are also at the forefront of architecture modernization and cloud migration. Finally, to focus on talent, leading procurement organizations continue to invest in their workforce by increasing head count in more strategic areas. A highly skilled strategic workforce is at the core of Digital World Class companies as advanced technologies provide new tools to deliver better service for stakeholders and suppliers. These roles require advanced analytical acumen to drive insights, as well as emotional intelligence, relationship management, innovation and change orientation, and enhanced understanding of business operations and stakeholder needs.
Action Plan for Digital World Class – The research offers an outline of how companies can assess their current performance, maturity, and capabilities, identify future capabilities to advance their digital agenda and create a journey map to progress towards Digital World Class performance levels.
The Hackett Group’s Digital World Class procurement research is based on an analysis of results from recent benchmarks, performance studies and advisory and transformation engagements at global companies.