Optimization: it’s what separates the procurement wheat from the chaff. It goes without saying that, in a business setting, it is always optimal to do and earn more while expending less, and that’s a capability that technology and automation have unlocked for many businesses.
Procurement organizations that have seized those capabilities have taken their business from good to great, raising it to a world-class level. They’re outperforming the average (the “peer group”) in efficiency and effectiveness of service delivery. They’re saving on labor and resources and reducing employee turnover in non-automated positions, which increases talent retention and therefore retention of institutional knowledge.
According to a June whitepaper by the Hackett Group, world-class procurement organizations save an average of 22 percent on labor costs and require 29 percent fewer full-time equivalents to deliver their services with the same or greater efficiency compared to peers.
Furthermore, they generate a higher ROI when comparing the savings generated by procurement with the company’s total operating cost. And they spend less time and money on post-issuance activities like resolving discrepancies in order quantity, quality, and pricing.
For a company making $10 billion annually in revenue, automation is likely saving around $6 million per year. Those who haven’t seized the opportunity can still catch up. Here’s what the Hackett Group recommends.
Digital Participation Is Mandatory
Going digital isn’t one option out of many. Today, it is the only option. World-class procurement organizations spend more on technologies like cloud, mobile, robotic process automation (RPA) and analytics, and it delivers clear productivity advantages.
With it, these organizations can deliver new services, such as predictive analytics to guide decisions, reduce errors and make information more easily accessible. Automation frees up procurement employees to focus on talent development and business-boosting activities rather than rote activities.
New technologies can accelerate the peer group’s performance toward the world-class level. Even those who have already adopted technology can continue to improve performance, potentially breaking through what the Hackett Group refers to as a “stubborn cost plateau.”
However, with all the great potential for technology, it’s important to remember that it is only one piece of a larger strategy that encompasses processes, information, talent and organization redesign. Organizations that rely solely on technology will find themselves adrift in an ocean – clutching a life preserver, yes, but far from rescue nonetheless.
How To Make The Most Of Digital
The Hackett Group outlines six “digital accelerators” that will be key for any organization looking to optimize via digital.
First, digital customer engagement is a must-have. There is no replacement for a service-oriented, customer-centric approach. Hackett says it’s not just about making processes more efficient, but about empowering employees and managers to be more productive by serving themselves.
Second, let robots do the repetitive work. Rules-based activities like data extraction, enrichment and validation are perfect candidates for robotic process automation. It can also help with activities that require multiple screens and with self-service inquiry resolution. However, it is best to introduce automation once other processes are settled, as the transition works best in a stable environment.
Third, for agile operations, an organization needs analytics-driven insights. World-class procurement operations spend substantially more on analytics systems and tools; they know that they need a smart system that can monitor external conditions and apply them to the business context in a dynamic, real-time environment.
Fourth, digital architecture must be up-to-date. Cloud-based applications can reduce the time it takes to find and qualify new suppliers by nearly a third, and e-sourcing software can do the same when it comes to contract lifecycle management, while also increasing the implementation of standard compliance terms and conditions.
Fifth, find ways to speed up work processes and cultivate collaboration using digital modes of communication, particularly among a new generation of employees.
Finally, let artificial intelligence coexist with and augment human intelligence in the workplace. Self-learning systems are great for predicting events and analyzing large data sets. Humans just aren’t as efficient. Pair them up with a robot, however, and they can apply that knowledge to reach smarter sourcing decisions in a much shorter time frame.
The Hackett Group indicates two ways to implement a digital transformation.
The first – and more traditional – way is to redesign processes first and then look for technologies that support them. The second, and the important one to consider, is reverse-engineering those processes based on the new technologies that are available and the opportunities they present.
Take bites rather than bolting your digital dinner, Hackett concludes. Taste everything on the plate, accepting that some of it won’t be for you, and that’s OK – it’s part of the trial-and-error process. Finally, decide what is manageable today, and prepare for continuous growth tomorrow and beyond.