In the past, procurement teams have had to fight to prove their operations are more than a cost center for their businesses. Digitization and automation have enabled the procurement function to evolve into one that can provide valuable insight into company spend, business relationships and supply chain management.
Much of this progress has occurred only within the last few years, according to Andrew Greissman, digital content director at Worldwide Business Research (WBR Insights), a business intelligence and events firm. WBR Insights has just published its third annual CPO survey, and this year, Greissman said, researchers have shifted their focus to how chief procurement officers are taking the next step in technological innovation now that they have a seat at the table with the rest of the business leaders.
“When I first started writing the report, a lot of topics we focused on were about reinforcing internal relationships between the CPO and other department heads, and proving the value of procurement involvement in things like IT, for example,” Greissman told PYMNTS in a recent interview. “Now, it’s a different environment. The CPO has proven a lot of value over the last several years.”
Joshua King, vice president and chief procurement officer for American Water Company and a contributor to WBR’s latest CPO report, agrees that this transformation has emerged surprisingly fast.
According to the survey, only 3 percent of CPOs at large organizations with more than $1 billion in annual spend say they have yet to begin a digital transformation journey, with the rest of respondents either having already completed that journey or being well on their way. Only a few years ago, King said, those numbers were probably reversed.
Among one of the areas of the procurement function that has a solid history of digitization is payments. Indeed, in WBR’s report, procure-to-pay technology was tied for first place (with spend analytics tools) as the technology with the highest current adoption rate: 78 percent of CPOs said they already have these tools integrated, versus just 4 percent who said they are exploring the technology.
King noted that at this point, technologies like procure-to-pay have proven ROIs. It’s the “semi-un-proven technology” like blockchain that is facing greater headwinds in terms of securing funding for digitization. Migration away from paper checks is now old news for these companies with high procurement spend; today, said King, one of the biggest challenges is getting vendors on the same page of payments technology.
“Where suppliers will sometimes push back is, I’ll call it their ‘technological sophistication,'” he said, adding that while the majority of vendors at American Water Company have been on-boarded to the firm’s B2B payments processing platform to receive digital payments, there are a few holdouts that lack progress in their own digitization journeys to embrace the tool.
The Gig Economy
Another, less expected trend that WBR’s report found to be driving procurement digitization is the embrace of the contingent workforce. The survey revealed that 33 percent of CPOs expect use of on-demand workers to increase in the coming year (and 37 percent plan to at least maintain their current level of contingency workers).
Increasing levels of automation have opened doors for human capital to provide strategic analysis and expertise, and as digitization continues, Greissman said procurement operations are more heavily relying on STEM (science, technology, engineering and mathematics) talent.
“It’s not just cost mitigation,” he said. “It’s important to recognize that there is a talent retention element for some specific skillsets related to IT.”
Those skillsets are changing, too, added King. Whereas only a few years ago the required skills would be managing invoices or routing paperwork, automation is ushering in the need for professionals who are well-versed in supplier, portfolio and spend category management. Contingency workers are particularly helpful in managing spend categories that are not core to an organization’s operations, he said, but still need a sophisticated level of subject matter expertise when the need arises.
The Next Chapter
What WBR’s report suggests is that large enterprise procurement functions are no longer struggling to prove their strategic role, and certainly aren’t stuck in the past of manual data entry and paper check payments. That doesn’t mean CPOs are finished with making progress, however.
“They’re on the cusp of starting to understand where they can get AI involved in future technology,” said Greissman. “People have the tools they need to do their jobs, and do it with the advantage of dedicated solutions. But the next chapter is just beginning.”
Struggles in adopting new technologies that can integrate with existing, legacy infrastructure, as well as budget challenges and a lack of a sense of urgency to digitize, are among the biggest barriers CPOs say they’re facing today.
King said the roles of the CPO and the procurement functions continue to evolve away from data analysts and toward professionals who are able to take action based on analysis that is automatically presented to them through technology.
“That’s the future we’re heading in,” he said, “and it’s going to call for a new skillset for the procurement professional of the future.”