Digital transformation or becoming a "digital business" is near the top of the priority list for many companies, survey after survey shows - though what that means exactly is open to interpretation.
The consultants at the Hackett Group, specifically Patrick Connaughton and Christopher Sawchuk, have their take on what digitization is all about, recently defining digital transformation as "the process of transitioning aspects of a traditional business into a digital business, principally by applying technology to innovate. Digital business is the pervasive use of digital technology in products, services and value networks, which change the ways companies work, create value and achieve business outcomes."
SCDigest isn't sure that exactly clears the definition up, but regardless many CEOs certainly are pursuing digitization strategies with gusto. And that means supply chains generally, and procurement organizations specifically, need to get on board too.
Supply Chain Digest Says... |
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| Hackett says that developing procurement talent to use these new analytic tools will be crucial, and that "It is impossible to overstate the importance of training and hiring for these skills" |
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But with Hackett research showing procurement budgets are on average likely to rise by less than 1% in 2017, finding the resources to support digitization will not be easy.
In fact, digitization is one of four procurement-related initiatives that fall into what Hackett calls its "critical development zone," which represents programs that are highly important, but for which the procurement organization is not well positioned or resourced to address. (See graphic below.)
Given all that, what is a procurement organization to do? To close the digital capability gap, procurement must prioritize its efforts in four key areas, Hackett says in a new report.
Improving the Stakeholder Experience: Top procurement organizations have largely already addressed most of the significant opportunities for cost savings and efficiency gains, Hackett says, making identification of new sources of value essential.
Procurement teams need to build trust with other stakeholders to get their buy in for looking at new areas for savings, which will often involve changing the status quo.
One way to do that, Hackett says, is to build an "omnichannel and personalized stakeholder experience."
Digitization Is a High Priority for Procurement,
but the Resources to Address It are Low
Source: The Hackett Group
What does that means? Hackett says it includes "enabling multiple buying channels (e.g., help desks, self-service online catalogs, third-party aggregator sites) and making them available anywhere/anytime to stakeholders."
It can also involve enabling real-time information and status checks on all procurement requests and transactions - in other words, increased visibility for stakeholders.
To improve the stakeholder experience, procurement organizations also need to measure value beyond just cost savings. For fast growing companies, supporting that growth and increasing agility might be highly valued, versus more mature companies that are more focused on efficiency improvements.
"The key is to continue to adjust the alignment between procurement's goals and its stakeholders' objectives," Hackett says, adding that many procurement organizations are "looking beyond cost savings and service level excellence to more strategic goals," such as supporting revenue growth, brand protection and freeing up senior management time.
Orchestrating a Procurement as a Service Portfolio: This refers to streamlining the buying experience and creating an organizational model that permits procurement to be closely aligned to its primary stakeholders so it can react quickly to changing requirements.
For example, Hackett says procurement leaders are expanding their service portfolios to deliver more value to the business and increase demand for their services, emphasizing the build-out of capabilities such as on-demand analytics and market intelligence.
Other companies are working to optimize their use of centers of excellence (COE) and placement of resources globally. "Nearly all advanced procurement groups use some type of COE to ensure that staff and internal customers receive consistent, best-practice-based support for activities such as analytics, benchmarking, reporting and transformation support," Hackett says. It adds that broad dissemination of market intelligence is one technique used by many procurement COEs.
Setting a Foundation of Analytics-Driven Insights: As procurement's role matures from transactional facilitator to what Hackett calls a "trusted business advisor," proficiency with the next generation of analytics and big data will be a key enabler.
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Hackett research finds "Over half of survey respondents indicated that they expect improving procurement analytics to be a higher priority in 2017 than it was in 2016," for example.
To that end, developing procurement talent to use these new analytic tools will be crucial. "It is impossible to overstate the importance of training and hiring for these skills," Hackett says. "The specific capabilities required can be understood only through careful definition of the objectives and governance structure of an analytics program."
Hackett also says that using predictive analytics to evaluate commodity price volatility and model the potential impact on cost structure and profitability is expected to be the next frontier for procurement analytics programs.
Leveraging Technology to Accelerate Transformation: Needless to say, technology is at the heart of any digital transformation, Hackett says, citing business-to-business networks that make it possible for trading partners of differing levels of technological sophistication to work together.
About 63% of survey respondents either have a single source-to-pay technology provider today or aim to have a single provider but just haven't gotten there yet, Hackett research finds. Just 15% rely on the procurement tools of their ERP system provider, while only 14% are taking a "best of breed" approach to solutions in different areas.
But a best of breed approach may needed in newer areas such as analytics and risk management, Hackett notes, writing that "Organizations must determine which features will truly differentiate procurement's services and whether the risks of working with a smaller, emerging technology vendor outweigh the benefits of a single, more established provider."
It adds its own view that emerging tools in sourcing, supplier lifecycle management and spend analysis are more likely to provide that type of differentiation than purchase-to-pay software.
"If procurement is to remain relevant in 2017, it must embrace the tenets of digital transformation," Hackett concludes. "A lack of confidence by the business about its ability to execute digital transformation brings procurement both opportunities and challenges."
What do you think procurement needs to do to get digital and support corporate digital transformation? Let us know your thoughts at the Feedback section below.
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