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Building Next-Gen Procurement Capabilities

Here are five digital transformation areas that all procurement departments should be thinking about in 2019.

According to The Hackett Group, procurement expects its budget to grow at a slower pace in 2019 versus 2018 (1.3%, vs. 2.7% last year). As companies strive to do more with less, procurement departments are sharpening their pencils and learning how digital technologies can help them become more strategic aspects of the overall organization.

In its new report, “2019 CPO Agenda: Building Next-Generation Capabilities,” the firm tells how digital technology can help procurement advance its service offering while “keeping a lid on operational costs.” Procurement must become fully dedicated to advancing its capabilities in analytics, customer-centricity, and agility, it notes, while also investing in the right talent to help lead those changes.

“However,” The Hackett Group points out, “there is still a mismatch between what procurement considers to be most critical for success and what it is able to address.” To offset these challenges, it says procurement must focus on five important areas, each of which centers on some form of digital transformation. They are:

Improve analytical capabilities. Core activities like spend analysis are moving toward real-time, custom, and predictive analytics, while less-mature analytics functions like risk management will join procurement’s list of fundamental responsibilities. The Hackett Group says procurement can improve analytical capabilities by using standardized master data, frameworks, and key performance indicators (KPIs), as well as by working with IT to upgrade data management architecture.  

Align skills and talent with business needs. “Procurement must enforce a new talent profile or risk falling behind the curve in critical capabilities,” The Hackett Group says, with key “must-have” skills including advanced analytics and data modeling, business acumen, relationship management, strategic thinking, and risk-management expertise.

Leverage supplier relationship management (SRM). Long a core capability for procurement, SRM is “due for a major shift in approach,” The Hackett Group predicts. Relationships between procurement and suppliers, for example, need to be more strategic, particularly in terms of collaboration and innovation. One way it suggests leveraging SRM is by leveraging digital tools that help streamline the supplier process, while also enhancing buyer-seller collaboration.

Improve procurement function agility. An important factor for all business areas, agility is a direct reflection of the changing market and technology advancements. “For procurement, this means faster decision-making enabled by efficient technologies and adaptive staff who possess a variety of skills and competencies,” The Hackett Group reports. To improve procurement function agility, procurement can leverage new technologies like robotic process automation (RPA) to help eliminate manual processes and reduce response time. 

Prioritize customer needs and expectations. “Procurement must become a partner for the businesses it supports, making it a priority to develop a deep understanding of business needs,” the firm advises. It adds that procurement must also make customer processes fast, efficient, and easy to understand through means such as self-service, 24/7 support, and process automation.

More to Come

While procurement stakeholders’ expectations are rising, the enterprise emphasis on cost is affecting the function more than any other business services function. “As procurement considers how to advance its service offerings while cutting costs,” The Hackett Group concludes, “one clear takeaway is that digital transformation will play a key part in successful strategies.”  

The number of organizations that believe digital transformation has a high or very high impact on the achievement of enterprise objectives—32% today—pales in comparison with the 60% that think it will do so within two to three years, the group reports. “The jump in procurement organizations expecting a major impact on their own performance within two to three years’ time is similarly sharp,” it adds.

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