Report: Digital Transformation Can Reduce Procurement Costs by up to 24%

Typical procurement organizations can substantially narrow the gap between their cost levels and that of top performers, and top performers can become even better by leveraging digital transformation, according to new world-class procurement research from The Hackett Group, Inc.

World-class procurement organizations now operate at 22 percent lower labor costs than their peers, and have 29 percent fewer staff, while demonstrating improved effectiveness and better performance across a wide array of key metrics, The Hackett Group's research also found. For a typical company with $10 billion in revenue, attaining world-class performance in procurement can represent as much as $6 million in potential annual functional cost savings.

World-class procurement organizations also generate more than twice the ROI of typical procurement organizations, generating more than $10 in savings for every $1 of procurement operating cost.

The potential cost take-out opportunity through digital transformation of the procurement function is dramatic, the research found. Typical procurement organizations can reduce procurement process costs by up to 24 percent by implementing robotic process automation, advanced analytics, cloud-based applications and other digital transformation approaches. World-class procurement organizations can reap process cost savings of 35 percent through digital transformation.

The research also found that in addition to reduced cost and fewer staff, world-class procurement organizations are significantly more effective than their peers in how they operate and deliver services. Transactions require discrepancy resolution two to three times less often. Annual procurement staff turnover is also 45 percent lower, a sign that staff are being given opportunities for professional growth.

The Hackett Group's research details six digital accelerators for improving procurement's performance and supporting business strategy over the long term, including: digital tools to enhance customer engagement; robotic process automation to perform rules-based activities; the use of big data and advanced analytics to drive insight and bolster decision making; cloud-based applications; digital workforce enablement to maximize productivity; and cognitive computing to simulate human thought and augment the ability of procurement to run models, make predictions, and analyze large data sets.

"Technology has always played an important role in enabling performance, but procurement has reached an inflection point,” says Christopher S. Sawchuk, a principal & global procurement advisory practice leader for The Hackett Group. “World-class can continue to reduce costs by embracing digital technology, and typical procurement organizations can leverage the same technology to catch up faster at less cost.”

"Today, digital business tools are converging with employees and consumers who are increasingly comfortable with new mobile technologies and business models," said Sawchuk. "This has created tremendous opportunities for procurement organizations to transform service delivery, reduce errors, make information easier to access, and even deliver a whole new class of services."

According to Robert Derocher, a principal at The Hackett Group, "Cloud-based software tools in particular are emerging as strong enablers of procurement activities. Supplier discover software, for example, can reduce the time it takes to find and qualify suppliers by over 30 percent.."

Derocher added that e-sourcing software can cut overall cycle time by 30 percent, with standard templates reducing data collection errors. Contract lifecycle management software can also cut the time required to find a contract nearly in half, and trim the number of lapsed contracts by nearly 40 percent, according to Derocher.

"Technology alone will not deliver results," explained Derocher. "It must fit within a larger strategy, one based on a well-designed service delivery model that looks at not just technology, but also processes, information, talent and organizational redesign. But the promise of digital, in the context of a well-rounded transformation effort, is tremendous."

 

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