Asked to perform the tricky balancing act of reducing costs while also adding value, procurement is facing some new hurdles right now. “In the digital economy, fierce competition means organizations, both at the enterprise and functional level, must continually reinvent themselves to keep up with the pace of change,” The Hackett Group points out in its new report, “Achieving Procurement Excellence in the Age of Digital Disruption.”
One way that procurement can cut costs is by automating processes to become more efficient, the firm points out. It can also become a more strategic advisor and partner to the business by providing new value streams. “Better analytics, increasing spend influence, and improving on value delivered from category management are all going to be areas of focus for procurement in 2020,” The Hackett Group says.
New Strategies and Business Decisions
By order of importance, procurement’s 2020 agenda looks similar to years past, with reducing purchase costs and becoming a trusted advisor among the most important objectives. Improving cost efficiency has risen to the top of the priority list, The Hackett Group reports, echoing an enterprise trend in 2020.
“And although some of these are currently well-supported,” it adds, “it remains crucial for procurement to design new strategies and business decisions with these objectives in mind to ensure continued success.”
5 Issues Challenging Procurement
Listing out the top issues challenging procurement professionals and their departments right now, The Hackett Group says these are the top five to watch (the full list is in its report here).
- The need to improve cost-efficiency. Reducing total cost of procurement is the No. 1 issue for procurement organizations in 2020. Top organizations will leverage high-performing talent and an optimized service design.
- Purchasing cost reductions. Reducing purchasing costs has consistently been a top priority for procurement organizations, indicating that providing core services is a basic requirement for success.
- The need to become a trusted business advisor. Top-performing procurement organizations recognize that a strong relationship with business partners enables early involvement and greater spend influence.
- Modernization of procurement application platform. Modernizing technology provides several benefits to procurement, including improved agility, customer-centric processes and cost efficiencies.
- Using strategic sourcing to improve spend influence. “Spend influence is among the top measurements of procurement’s performance,” the firm says, “leading to reduced purchasing costs, improved quality and better strategic outcomes like product innovation.”
Additional areas of concern right now include the need for better analytical and reporting capabilities and a lack of procurement agility. Buyers are also concerned with the level of value being driven through category management and focused on improving performance measurement. “Improving performance measurement is key to capturing procurement’s multiple value streams,” The Hackett Group points out in its report, “as well as communicating with various stakeholders.”
Strategic Implications
For procurement to be able to keep up with increasing business demands, The Hackett Group says it must quickly expand its value delivery model. “Providing savings is no longer an achievement for procurement,” it adds. “Instead, it is a basic expectation, while improving services like risk management, self-service and data-driven insights are new objectives.”
To overcome some or all of the challenges outlined in its report, The Hackett Group says procurement leaders should start with their own enterprise business objectives, including digital transformation; data and analytics; agility; and talent/skills. These are all areas where the bulk of procurement organizations currently fall short when it comes to supporting the enterprise. “From there,” the firm concludes, “procurement can develop a strategic plan designed to deliver multiple value streams to the business.”
