Study: Procurement Puts Cost, Technology, Analytics on the Front Burner

Improving cost efficiency in procurement operations has moved to the top of the procurement agenda for 2020.

Pexels Brainstorming

Procurement faces a dual challenge in 2020 – reducing both external and internal operating costs while adding value and becoming a better strategic advisor to the business, according to new Procurement Key Issues research from The Hackett Group, Inc. Modernizing procurement application platforms and driving 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,” says The Hackett Group research director Laura Gibbons. “We also see digital transformation, including technology application modernization and analytics, as an avenue to drive cost efficiency and value to the top of the procurement agenda. 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—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,” says Gibbons. “Technology and 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 is key to being able to accomplish things like better influencing spend and supporting business innovation. But clearly more progress is required.”

The research found significant room for improvement of procurement technology meeting business expectations. Many recent procurement technology initiatives fell short of expectations, in part due to the lack of a comprehensive digital transformation plan, poor change management, and skills and talent deficiencies. Only one of the five procurement core automation technologies – best-of-breed solutions – met or exceeded business expectations more than 60% of the time. This points to the fact that procurement must focus not only on technology enablement but also end-to-end value streams to drive results within the enterprise. 

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. But, the study also found that a full 50% of all RPA implementations have fallen short in terms of their ability to realize business objectives.

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 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.

According to The Hackett Group principal and global procurement advisory practice leader Chris Sawchuk, “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.”  

Moving forward, procurement must maintain a keen focus on the skills gap that it is facing and freeing up resources to focus on more value-added roles, the research recommended. Driving cost and agility across the enterprise are top priorities for the enterprise in 2020.  Procurement has an opportunity to elevates its role by having a seat at the table strategically advising and supporting the enterprise cost efficiency improvement that is expected.  This will require procurement to be keenly focused on building the right analytic capabilities, the right technology for efficiency improvement, and aligning skills and talents with the business as needed.

The Hackett Group’s 2020 Procurement Key Issues research, “Achieving Procurement Excellence in the Age of Digital Disruption,” is based on results gathered from nearly 200 executives in finance, HR, IT and procurement at a global set of midsized and large enterprises.