Technology Is Transforming Procurement Operations: Here’s What You Need to Know

The Internet of Things, predictive analytics and social sourcing are poised to have the most impact on procurement

Jill Ivancich
Jill Ivancich

Technology is quickly reshaping just about every aspect of the way business is done. It is a catalyst for change as well as an enabler across industries, and the procurement industry is no exception. New technology provides opportunities for procurement to boost market coordination, introduce new suppliers, enable better compliance, increase capacity and speed, minimize risk and increase trust by removing human error. These advancements not only enhance the performance of the buyer’s organization, but also enhance the performance of the suppliers—helping improve the buyer-supplier relationship, collaboration and innovation.

Xchanging recently surveyed 830 procurement professionals across the globe on how technology is transforming procurement. The research aimed to help people understand what technologies are most valuable and significant to procurement, and the latest trends in procurement technology.

The U.S. Leads in Adoption Rates

Procurement functions already adopted a significant amount of technology, witnessed by the more than half of respondents who said they already implemented 11 of the 12 technologies listed on the survey. The most widely implemented technologies were savings tracking and spend analytics, with 77 and 76 percent of organizations already having these technologies in place, respectively.

This reflects the increased pressure for spending cuts and streamlined processes in today’s challenging economic climate. These pressures were also seen in responses regarding the key performance indicators (KPIs) that procurement functions are measured by. The top four KPIs used by companies were cost-related with 47 percent citing cost savings realized as the most important, followed by revenue impact at 19 percent, cost savings identified at 16 percent and cost avoidance at 14 percent.

When looking at current adoption trends, more than two-thirds of companies surveyed already have automation, reporting dashboards and contract management systems in place. Additionally, supplier performance management and market intelligence software are being used by 64 percent and 60 percent of companies, respectively. The highest adoption of these solutions was seen among companies based in the U.S. (where companies are 8 percent more likely to have all of these technologies in place compared to those in mainland Europe), companies with more than 3,000 employees, companies in the retail/consumer goods and manufacturing industries, and companies that outsource parts of their operation.

However, this research revealed an interesting contradiction amongst procurement professionals: While technology adoption was shown to be relatively high within the industry, a majority of respondents cited more/better technologies as the one change they would make for improved procurement performance. This means that, while technology use is increasing within the procurement industry, procurement professionals are eager to see additional growth and investment in the area.

Capacity Issues Influence Investment Priorities

Procurement decision-makers feel that automation is the future for the function. Process enhancement, automation and talent development were cited as the biggest investment priorities for procurement professionals at 28, 24 and 22 percent, respectively. These results highlight the capacity issues faced by the industry, as 80 percent of respondents identified procurement team time pressures as a challenge and 20 percent cited it as a major challenge.

Companies with decentralized procurement were 17 percent more likely to consider process enhancement a top priority than those with centralized operations. And, in companies with more than 3,000 employees, talent development was considered to be a bigger investment priority than companies with only 500 to 999 employees.

There is also a discrepancy between C-suite respondents and middle managers on where investment priorities lie. C-suite respondents were more likely to consider analytics an investment priority compared to lower management directors and middle managers. On the other hand, middle managers were nearly twice as likely to consider process enhancement an investment priority compared to C-level executives.

Additionally, robotic process automation (RPA) is quickly emerging as a disruptive technology in which companies are looking to invest in the procurement industry. RPA is capable of delivering cost savings, enhanced accuracy, productivity gains and increased compliance. While RPA left many people feeling threatened by the idea of robots taking their jobs, workers at companies where RPA is already installed are embracing the technology since it frees them up to focus on more innovative and strategic tasks.

Predictive Analytics Will Be King in Procurement

Looking at the procurement industry, it is evident that there are three emerging technology trends that are poised to have an impact on the space: the Internet of Things (IoT), predictive analytics and social sourcing.

Procurement professionals believe that predictive analytics will have the largest overall impact on the industry over the next five years, at 80 percent. Additionally, 79 percent believe that IoT will have some impact on the procurement industry in the coming years and 20 percent believe it will have a major impact.

These results are incredibly positive for the procurement industry, showing that procurement leaders are embracing change, innovation and technology. But what improvements will these technologies actually bring to the procurement function?

Predictive analytics tracks purchasing patterns over time to help forecast a direction of travel and determine where a certain line is headed. This information allows teams to anticipate problems and intervene before it’s too late. Procurement teams will benefit from this by staying ahead and responding proactively.

According to Gartner, IoT will “significantly alter how the supply chain operates.” This specifically relates to how supply chain leaders access information. IoT will further allow enterprise resource planning and supply chain management to work together by connecting people, processes, data and things via devices and sensors. IoT in the supply chain and transportation industries is part of today’s larger picture digital business landscape by which connected devices enable organizations to work smarter, plan better and foster more intelligent decision-making processes.

Don’t Get Left Behind

While technology is already beginning to reshape procurement, we only just scratched the surface for the impact it will have. Some companies started to recognize the transformation technology is destined to make in the procurement field; procurement leaders who do not recognize and embrace its impact are likely to fall behind. With many processes fit for automation, companies will demand that their procurement efficiency keeps pace with their rivals. This will be critical for long-term success, so be sure your business is ready.

Jill Ivancich is the CEO of MM4, an Xchanging Company. Xchanging is a multi-national, publicly listed business technology and services provider. Ivancich previously served as the director of the Global MarketMaking team of Xchanging.

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