Inside Supply Management Magazine

Digital Transformation Is Key to Procurement Meeting Business Needs

April 01, 2019

As organizations struggle to get more out of less, digital technology can help them control operational costs while meeting a critical business need: improving analytic capabilities, according to The Hackett Group's 2019 Key Issues Study.

"As procurement figures out how to advance its service offerings while cutting costs, one clear takeaway is that digital transformation will play a key part in successful strategies," states the report, which surveyed 150 procurement, finance, IT and human resources executives of global midsize and large organizations in late 2018.

While only 32 percent say that digital technologies highly impact the procurement function's achievement of business objectives today, 60 percent say they will do so in two to three years, the report found. Procurement’s performance, service delivery model and roles, skills, profile and needs also are expected to be more impacted by digital transformation in the next few years.

Respondents expect procurement budgets and staffing rates to grow at slower rates than last year; however, revenues are expected to increase at a slightly faster rate, 5.7 percent compared to last year's 5 percent. Thus, organizations will face productivity and efficiency gaps, the report states, which can be impacted by digital technologies.

According to respondents, organizations in the next two years intend to invest most heavily in cloud-based and data management technologies, with the latter including:

Data visualization, which recorded an adoption growth rate of 24 percent

Master data management (up an anticipated 57 percent in adoption growth rate)

Advanced analytics (60 percent)

Spend optimization analytics and dashboarding (61 percent).

Also, procurement-specific technologies are likely to become more broadly adopted, as are mobile computing and robotic process automation (RPA), the study found. While RPA primarily is used for procure-to-pay solutions now, there is potential for other procurement uses, such as updating supplier master files.

Despite the push toward digital transformation, it's not the only need of today's procurement organizations, the study says, citing four other critical areas: aligning skills with talent, leveraging supplier relationships, making customer needs a priority and enhancing agility. While digital transformation is a positive sign, the procurement function still needs to advance its other capabilities and invest in the right talent to lead change, says Chris Sawchuk, principal and global procurement advisory practice leader at The Hackett Group. He and Laura Gibbons, research director, procurement executive advisory program at Hackett, authored the report.

"The focus on improving analytics for 2019 is particularly encouraging," Sawchuk says. "But the laundry list of critical areas where (organizations) have very limited ability to make improvements is very disconcerting. Despite that procurement knows what it needs to do, it's simply not fully translating into an effective plan of action."

Gibbons remarks that failing to address the five needs can be risky for organizations. "Agility is critical if procurement is to be able to respond to market changes," she says. "Without a focus on customer-centricity, procurement can miss significant opportunities for improving efficiency. … And without supplier relationship management, opportunities for innovation can be missed." And aligning skills with talent is essential, particularly concerning digital tools, she says.