The integration of digital technology into all areas of a business—fundamentally changing how those companies operate and deliver value to customers—digital transformation has been making its way into the procurement department over the last few years.
If a new report from The Hackett Group is on target, digital transformation is not only helping procurement departments reduce operational costs by up to 45%, but is also enabling high levels of efficiency, improving organizational effectiveness, and enhancing the customer experience.
“By deploying smart automation technologies such as robotic process automation, smart data capture, and cognitive automation, typical procurement organizations should expect a 17% cost reduction,” it points out in the report, “while world-class procurement organizations can reduce an already competitive cost structure by an additional 21%.”
By taking a customer-centric approach to service delivery, procurement can also bring greater business benefit to their companies. “In response to the pressures of rising demand, disruptive tech, and intensified competition, procurement is turning to digital transformation,” The Hackett Group’s Chris Sawchuk said in the report. “And as our research shows, the potential is there for even the best procurement organizations to use digital to dramatically improve efficiency, effectiveness, and customer experience.”
Few procurement organizations are there yet, Sawchuk added, but business leaders understand that digital is changing everything. Some of The Hackett Group’s key findings included:
- Nearly 60% of business leaders from a variety of functions say digital transformation has already had a high or very high impact on their industries.
- That number that will grow to 72% within two to three years.
- Forty-six percent report that digital transformation has strongly affected their operating model today
- Seventy-two percent expect it will do so within two to three years.
- Of the procurement executives, specifically, 86% anticipate a high impact on the procurement function’s performance over the next two to three years.
- A similarly high percentage say digital transformation will have a substantial influence on their operating model.
Procurement Under Pressure
In its report, The Hackett Group highlights several different trends that are pressuring procurement organizations to digitize their operation, including rising consumer demands, disruptive technologies, and increasing competition. Combined, these trends are forcing businesses to either adapt quickly or be left behind.
To CPOs who want to lead world-class procurement organizations, The Hackett Group suggests taking a holistic approach to digital transformation. Here are six good starting points that electronics buyers can use to implement and follow through on as they start (or continue) their digital transformation journeys:
- Review KPIs and take action where improvement is needed. Metrics should gauge the drivers of performance and strategic goal achievement. Additional thought should be given to ensuring that customer experience metrics are incorporated into the updated performance metrics, the company suggests.
- Put customers at the center of service design. Design service delivery for different workforce segments and levels of management, The Hackett Group advises. Apply methods such as focus groups, design committees, user personas, customer journey mapping, and iterative prototyping.
- Use digital technology to increase productivity and improve the customer experience. Provide information and tools that increase the productivity of procurement staff and the workforce as a whole. Use a “mobile first” principle to enforce simplicity of design, the company adds, and introduce smart automation such as chatbots to handle routine inquiries.
- Build analytics capabilities. To develop better insights and decisions, The Hackett Group suggests assign dedicated analytics resources in every area of procurement. Establish data management governance and processes to provide consistent, usable, and meaningful data for analytics.
- Develop procurement’s data savviness. Train staff to solve problems using data and package analytical findings into business-relevant stories, and recommendations, The Hackett Group points out.
- Recruit from other parts of the business. Finally, The Hackett Group recommends procurement assign staff to cross-functional teams to learn about the operations of different parts of the organization.