While procurement groups are improving their approach to digital tools, their budgets are expected to remain virtually flat during 2018, according to a report from researcher the Hackett Group. “While procurement leaders acknowledge the importance of strategic enterprise objectives, including expanding procurement’s influence, elevating the role of procurement, and improving agility,” the report notes, “procurement’s ability to address them is low.”
Two thirds of procurement organizations have a strategy in place to address their digital capabilities while nearly half say they have the resources and procedures in place to execute their plans, the report said. That’s a noteworthy step. “Last year, procurement leaders told us that digital transformation was a priority, but most simply didn’t have the strategy and resources in place to move forward,” said Chris Sawchuk, a Hackett Group principal and leader of its Global Procurement Advisory practice “This year, that gap has closed significantly.”
Sawchuk said more organizations are planning for, and ready to act on, digital transformation. At the same time, he observed that “a significant number of companies” haven’t gotten to where they need to be. “Digital transformation has the potential to be such a game changer that these procurement organizations are at risk,” he warned. On top of that, budget pressures will impact their ability to execute digital projects and require a reassessment of competencies and realignment of resources.
Despite the challenge, procurement leaders expect digital transformation to help them achieve an array of critical objectives in 2018, the report said. These include cost-cutting, improving their agility as well as their ability “to serve as a trusted advisor to the enterprise.”
Over the next two to three years, Hackett expects procurement organizations to dramatically increase their use of robotic process automation and AI-related technologies such as cognitive computing, machine learning and virtual assistants. They also plan to expand their use of more mainstream technologies such as cloud-based applications, advanced analytics, data visualization and mobile computing.
The Hackett Group believes procurement must improve its capabilities in four areas this year:
- Aligning skills and talent with changing business needs.
- Measuring and managing procurement performance and business value.
- Obtaining more value from existing suppliers through relationship management.
- Obtaining more value from existing categories through category management.
“These key capability areas reflect the need to continually innovate and expand collaboration by investing in resources and technology that promotes actionable intelligence, improves the user experience and enhances supplier collaboration,” the Hackett Group said.
Procurement executives expect to dramatically increase their use of an array of mainstream and emerging technologies over the next two to three years, with data being the major theme. Also, they expect AI to augment their analytic capabilities within current technology infrastructures. Just over 30 percent are running pilot projects in areas such as cognitive computing and virtual assistant technology.
Meanwhile, their budgets are expected to fall by 0.3 percent in 2018, the Hackett Group’s said. Taking into account an expected 3.6 percent growth in revenue this year, this creates “a significant productivity gap that procurement organizations must overcome.” That will make it challenging to invest in digital transformation efforts, Hackett observed.
The Hackett Group’s report, The CPO Agenda: Expanding Procurement’s Influence Through Change and Innovation, is based on results gathered from more than 160 executives in the U.S. and abroad, most at companies with annual revenue of $1 billion or greater.
A version of the research is available for download (registration required) here.
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