Want a world-class procurement organization? Start with digital technology, research report says

Conventional wisdom has long asserted that to improve the performance of your procurement or supply management operation, you need to start by redesigning or optimizing existing processes. Only after that has been done should you look for technologies that fit the new processes. But a new research report from the consulting company The Hackett Group Inc. has a different message: Start with the technology, not the process.

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[Figure 1] Process cost reduction attributed to digital transformation
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In the report "Raising the World-Class Bar in Procurement Through Digital Transformation," the research and consulting firm asserts that to substantially lower costs and improve performance, procurement organizations must leverage new digital technologies, such as predictive analytics, social media, robotic process automation, and artificial intelligence. While the procurement software and solutions that were popular at the turn of the 21st century focused on automating existing processes, these new solutions are predominantly designed to better engage internal and external customers in order to provide better service.

As a result, these new solutions are forcing companies to adopt completely new ways of managing procurement processes, according to the report. For that reason, any transformation effort should start by "looking for opportunities to use new technologies and creating new processes around them that are customer-centric and efficient," the report recommends.

The report provides the following examples of how new technology can be applied to the procurement function:

• digital tools, such as social media and self-service solutions, to enhance customer and employee engagement and productivity
• robotic process automation to perform rules-based activities, such as requests for quotation, invoice creation, and payment, that previously were done by employees
• big data and advanced analytics to drive insights and bolster decision making
• cloud-based applications, such as supplier discovery software, e-sourcing software, and contract-life management software, to improve productivity and reduce costs
• cognitive computing and artificial intelligence to simulate human thought and augment the ability of procurement employees to run models, make predictions, and analyze large data sets

According to the report, a typical procurement organization can reduce procurement process costs by up to 24 percent by implementing these types of technologies. Organizations that have already achieved world-class status, The Hackett Group says, can reap process-cost savings of 35 percent. (See Figure 1.)

"Technology has always played an important role in enabling performance, but procurement has reached an inflection point," said Christopher S. Sawchuk, a principal and global procurement advisory practice leader for The Hackett Group, in a statement. "World-class [procurement organizations] can continue to reduce costs by embracing digital technology, and typical procurement organizations can leverage the same technology to catch up faster at less cost."