Technology and automated processes are increasingly crucial parts of managing corporate procurement operations, all in the name of cost savings.
While it appears that procurement strategies are evolving to be more technology-centric, two new research reports released this month suggest that as the implementation of technology increases, so does the importance of human connectivity.
And while cost savings will always be a key driver for procurement officials, analysts suggest that procurement organizations and officials are turning to efforts that strengthen relationships within the company and across the supply chain that provide more than financial benefits to an organization.
Among the research published this month is a new report by Hackett Group, “How procurement organizations are reinventing the stakeholder experience.” Analysts found a strong correlation between the ability of a procurement organization to reach “world-class” status and their ability to deliver cost savings to their corporate clients. For example, researchers found that top-tier procurement service providers generally offer more efficient tools at 17 percent less cost to businesses. These leading businesses, Hackett said, generate up to $5 million worth of savings for their partners.
How do they do it? Analysts identified several tools used by leading procurement organizations, including the globalization of their efforts and the embrace of Big Data analytics.
But, Hackett concluded, world-class procurement firms can only go so far running on a platform of cost savings. “Efficiency gains have reached their practical limits,” the researchers said, adding that “further cost savings and efficiency gains are increasingly hard to come by, and new sources of value have to be unearthed.”
Key to these new value propositions is the strengthening of relationships. For example, the procurement organizations that yield the most effective strategies and highest confidence among their business clients are those that invest in elevating their position as an advisor to businesses’ procurement activities. Those that are considered to be true business partners by their clients, the research found, offer savings 86 percent higher than procurement organizations that are considered “gatekeepers” by their clients.
World-class procurement organizations were found to invest in their connectivity with business clients nearly twice as often as the typical organization, and show a greater willingness and flexibility to realign their strategies to meet their clients’ goals. Reports said 83 percent of top-tier procurement firms say they have dedicated resources that connect their clients to the organizations, versus just 44 percent of the typical procurement organization. These efforts are resulting in significant cost savings, researchers found. The companies that invest more time in ensuring their actions are aligned with the needs and goals of their clients yield 41 percent more cost savings than companies that invest little time in this effort.
According to Hackett Group, this trend signals an evolving role of the procurement function for a business into one emerging from behind the scenes and into the spotlight.
“In essence, while in the peer group procurement is still considered mostly a back-office function, world-class organizations have turned procurement inside out to become client-facing service providers that are deeply embedded in their stakeholders’ teams,” the report found.
SAP and Oxford Economics
Meanwhile, a separate study conducted by SAP and Oxford Economics found similar patterns arising in the in-house procurement department. Released this month, their report, “The Future of Procurement,” found the rising importance of the role of procurement in a business’ overall performance.
Companies are consistently increasing their investments in procurement activity, researchers found, and much of this investment is zeroed in on human capital. Executives surveyed said that they are hoping to focus these new procurement officials on strengthening strategic relationships with suppliers. More than half of procurement practitioners surveyed (55 percent) said they spend most of their time working one-on-one with suppliers.
But the study also found that procurement officials are spending more energy on strengthening ties within their own companies. Certain findings of the research note that automation is on its way – 70 percent of executives, for example, anticipate the arrival of fully automated invoice management within the next two years. As tools provide procurement officials with ways to automate processes, both executives and procurement practitioners are dedicating more of their day to collaborating with other areas within the company as well as outside of it.
About half of both practitioners and executives agree that procurement is strengthening ties with suppliers. But even more – 59 percent of executives and 63 percent of practitioners – agree that procurement is becoming more collaborative within other parts of the business itself, suggesting that procurement and the company’s goals are working toward becoming aligned.
The Human Connection
The role of procurement is shifting, researchers agree, and as innovative software lands the power of automation in the hands of procurement officials, some industry players have questioned whether technology would ultimately negate the need for actual people in the procurement department.
But both Hackett and SAP have released findings that suggest as automation continues its upward slope in procurement – from automated invoice processing to Big Data analysis – this technology could actually be freeing up time for procurement officials to strengthen relationships both inside and out of their companies. And that, analysts say, can launch an entirely new strategy to cost savings.