Procurement Must Reduce Costs While Continuing to Become a Better Strategic Advisor

Better analytics to improve spend influence and enhance value are key focuses for procurement in 2020, the research found.

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Procurement faces a dual challenge in 2020 – reducing internal and external costs while at the same time adding value and becoming a better strategic advisor to the business, according to new Procurement Key Issues research from The Hackett Group Inc. Better analytics to improve spend influence and enhance value are key focuses for procurement in 2020, the research found.

Improving cost efficiency in procurement operations has moved to the top of the procurement agenda for 2020.  The long-time top priority of purchasing cost reduction has shifted to second place, followed by the need to become a trusted advisor.

“Companies are simply demanding that procurement deliver value in new ways. Economic uncertainty is pushing companies to be more agile, and procurement must do the same, becoming a more cost-effective and value-driven function,” said The Hackett Group Research Director Laura Gibbons.

“We also see digital transformation, including technology infrastructure modernization and analytics, as helping drive cost efficiency and value to the top of the procurement agenda,” said Gibbons. “Procurement organizations have made significant investments in these areas over the past few years, and many are mid-way through their transformation. Corporate leaders are now looking to see greater ROI.”

The research identified five areas where procurement has critical capability gaps that need to be addressed in 2020. These are : improving procurement’s agility; becoming a trusted advisor to the business; aligning skills and talent with business needs; modernizing application platforms; and improving analytical and reporting capabilities.

“It’s critical that procurement focus in these areas,” said Gibbons. “Technology & analytics are essential for success in today’s business world. Aligning skills and talent is key to enabling procurement to support enterprise objectives, but it’s an area where procurement has not focused sufficiently. There’s been a lot of effort by procurement to be a trusted advisor to the business, and it’s key to being able to accomplish other things, like better influencing spend and supporting business innovation. But clearly more progress is required.”

The research found significant room for improvement in terms of procurement technology meeting business expectations. Many procurement technology initiatives fell short of expectations in 2019, in part due to the lack of a comprehensive digital transformation plan, change management strategy, and appropriate talent on hand. Only one of the six procurement technology areas examined -- best of breed solutions – met or exceeded business expectations more than 60% of the time.  

Legacy procurement applications are quickly being eclipsed by next-generation cloud-based systems, which are expected to see nearly 25% growth in 2020, the research found. Robotic process automation is also expected to see strong growth. While more than 64% of procurement organizations have piloted RPA, only 9% have done large-scale deployments.

Analytics and information management are a key focus for procurement at present, with more than 50% of organizations working on improving data quality and master data management, The Hackett Group’s research found. This, alongside investing in talent and analytics skills, are essential first steps in developing strong analytics capabilities.

Organizational resistance to change is the top hurdle preventing procurement transformation, the research found, followed closely by lack of critical skills by procurement staff.

“Historically, procurement’s major challenges have been funding and resource inadequacies as well as a lack of commitment from enterprise executives for transformation.  But those are not as pressing issues today.  In fact, many of the hurdles we’re seeing are now areas that procurement can change and improve, like critical skill deficiencies in analytics & modeling, technology and strategic thinking as well as overall data related issues,” says The Hackett Group Principal & Global Procurement Advisory Practice Leader Chris Sawchuk.