Inside Supply Management Magazine

Digital Transformation Helps Organizations Reduce Costs, Improve Efficiencies

November 11, 2019

Five years ago, few procurement organizations talked about holistic digital transformation. Although it has emerged as the leading vehicle to deliver greater value and improve customer experience, it has shifted from being digital transformation to plainly transformation of which digital is core, says Chris Sawchuk, principal and global procurement advisory practice leader for The Hackett Group, a Miami-based business consultancy.

“It's inherent: When we say transformation, its digital transformation,” he says. “It’s part and parcel to what we’re doing. It’s gone from where barely existing to the hype stage, and now to the stage where it is integrated into how we operate and think on a go-forward basis.”

The Hackett Group defines digital transformation as “improving customer experiences, operational efficiency, agility and business value contribution by fundamentally changing the way services are delivered, using digital technologies as the enabler of holistic transformation,” according to its report, World-Class Procurement: Redefining Performance in a Digital Era. The report found that full deployment of digital tools can enable typical organizations to reduce operational costs by up to 45 percent while improving efficiency levels, effectiveness and customer experience.

The Hackett Group labels top-performing procurement organizations “world-class;” such organizations typically spend 22 percent less than their peers. They can achieve even greater cost reduction if they have undergone a comprehensive digital transformation, reducing costs by an additional 33 percent, the research found.

What encompasses comprehensive digital transformation? In addition to digital technologies and technology-landscape optimization, it also comprises operating model changes. “Digital transformation is more than just putting in a system. It is a change in mindset and focus for the organization,” says Sawchuk, one of the report’s authors. “It is about a new way of doing things — this is where emerging technology comes into play — but it is also about customer centricity and velocity," he says.

A digital transformation doesn’t have to be comprehensive to be beneficial, The Hackett Group’s research states. A simpler interim approach to digital transformation that involves implementation of smart automation technologies like RPA, smart data capture and cognitive automation also can reap financial benefits for companies. According to the research, typical procurement organizations can anticipate a 17-percent cost reduction, while world-class organizations — which already have competitive cost structures — can expect an additional 21-percent reduction in cost.

Digital transformation also extends to focusing on the customer. With companies seeking to become “digital first” and asking how they can do things in a more digital way, they also need to create “a new model that is much more centered around the customer,” Sawchuk says.

“The procurement customer can be viewed in a couple of ways: (1) internal stakeholders, especially in an indirect-spend procurement, or (2) an external customer, either the company's customer or a supplier,” he notes. “We have to consider who that customer is and design the procurement experience through their eyes. Basically, it's customer-journey mapping.”

The third aspect of digital transformation pertains to velocity, Sawchuk says: “We’re in an environment where speed is king: It's how fast can we innovate and bring things to market? The expectations of the markets have changed and thus the cadence — the cycle time — of our companies has increased. You could have the greatest product in the world, but if it gets to market too late, its benefits are diminished. Supply management organizations must enable the velocity of their businesses.

“Digital transformation is not just about doing things in new ways with new technologies. It is also about customer centricity and velocity. All three are necessary for holistic transformation,” he says.