In the last few years alone, talk of the role of the procurement department in helping companies manage cash flow has grown louder. But how can procurement achieve this emerging responsibility in the future, and how are chief procurement officers rising up to the challenge today?
A slew of new analysis released in recent weeks offers some industry insight into how CPOs are prioritizing technology to help them handle the lofty expectations they are now facing and into the disconnect CPOs experience in using that technology to their advantage.
“After decades of relative inertia, procurement organizations are poised for radical change,” wrote authors Kai Nowosel and Kris Timmermans in the latest report from enterprise consulting group Accenture.
The paper, “Is Yours a Procurement Organization Of One?,” envisions major changes in the next five to seven years, during which the procurement team will become “one” not only with the corporation as a whole but with the supplier ecosystem and their digital processes. The report proposes some bold predictions about how CPOs and their teams will become more cost efficient and how technology has taken center stage.
[bctt tweet=”After decades of relative inertia, procurement organizations are poised for radical change.”]
According to Accenture, 60 percent of firms reported investment in digital collaboration platforms to ease friction in their procurement processes. The Internet of Things, the authors added, is seeping faster into the procurement department, with about one-third of those surveyed saying they recognize the potential for IoT as a “digital game-changer.”
Altogether, this embrace of high-tech, coupled with the heightened role of the CPO, will lead to tangible cost savings, researchers concluded. In consumer goods, for example, analysts calculated that digitally enabled firms will see procurement costs of 0.22 percent against net revenue, compared with 0.5 percent of costs incurred by their peers.
Big Data Troubles
Despite Accenture’s optimistic view about the incoming evolution of the procurement department, both Accenture, as well as procure-to-pay service provider Zycus, have released analysis that uncovers some troubling stats about the way procurement teams use technology and Big Data to save money.
Accenture’s report, for example, found that in the majority of companies, procurement is the least likely department to use data analytics — just 40 percent, compared to the 59 percent of firms that use analytics in their finance operations and 55 percent that do so in their customer service efforts.
Zycus, meanwhile, published its 2015 Procurement Performance Measurement and Management study earlier this month, this year with the theme, “Procurement Performance Management Comes of Age.”
While analysts at the company identified significant performance improvements in the way procurement teams conduct business, a lack of quality data and a lack of clarity on the type of data to measure (and how) means CPOs are forced to make tradeoffs in how they analyze the performance of their teams and how that performance contributes to cost savings.
Some data points are easier to measure than others, Zycus found. For example, 86 percent of procurement officials surveyed said they measure hard cost savings. Further, 71 percent said they measure days payable outstanding, and more than 60 percent said they measure spend under management, working capital efficiency and supplier performance.
As you can see, the trend appears to suggest that the ability to measure “hard” data, like cost savings and days payable outstanding, is more common than “soft” data, like supplier performance.
What’s more, as CPOs are faced with mounting pressure to cut costs, become more efficient and improve the performance of procurement overall, procurement professionals seem to want a greater emphasis on analyzing key performance indicators on service and productivity than they do on hard data factors, like purchase order costs or product cycle times.
“There is a large and troubling gap between what corporations measure for procurement performance,” the report added, “and what a majority of procurement pros would like them to measure,” the report concluded. “This is not good news for CPOs.”
And to add salt to the wound, Zycus research found that 63 percent of those surveyed reported a lack of access to high quality or the right data to measure procurement success. But the largest pain point for CPOs in measuring performance? “Lack of time/resources.”
More Technology, Less Clarity
The ability of corporate procurement teams to embrace technology appears to be improving, according to analysis from both Accenture and Zycus.
“Leaders expect digital technologies to allow them to re-evaluate and re-imagine the entire procurement process, even down to the most fundamental of procurement processes,” Accenture’s report noted.
But the ability for CPOs and their teams to effectively use that technology, analyze their practices and deliver the cost-saving results as demanded by their corporations appears to have not yet fully made its way into the procurement department.
[bctt tweet=”The ability for CPOs to effectively use technology has not yet fully been realized.”]
“Although most organizations have systems in place for measuring supplier performance,” Zycus concluded, “relatively few appear to be actively and systematically managing that performance in ways that can yield direct top-line business performance improvements.”