Digital transformation has the power to turn procurement into a critical change agent over the next couple of years. Yet, as I discussed in my last blog on spend analysis, procurement executives have been hesitant to fully participate in the digitalization happening all around them throughout the enterprise, despite the benefits they can achieve.
Take a look at this statistic from The Hackett Group study “The CPO Agenda: Expanding Procurement’s Influence Through Change and Innovation.” A full 95% of the executives surveyed believe that digital transformation will fundamentally change the way procurement services are delivered within the next two years. Yet these CPOs are worried that shifting to a digital model will increase risks in areas such as cybersecurity, access to talent, intensified competition, regulatory compliance, and disruptive innovation.
Those are all valid concerns, but standing still from a business transformation perspective won’t prevent those challenges from happening. In fact, continuing to use old legacy systems and processes may even open up organizations to more risk.
Consider an integrated approach to reduce risk
It is time for CPOs to recognize that transitioning their procurement to a single, cloud-based integrated suite can, in fact, help them improve margins, reduce costs, and manage risks. And it could even be an enabler of business innovation – and the very digitalization they have wanted to avoid – in other parts of their organizations.
One thing is clear: the old way of managing procurement just doesn’t work anymore. Organizations have typically adopted one application, such as spend analysis, then sourcing, and finally contracts, as the need and readiness arises. A step-by-step approach is certainly not a bad one unless the solutions are from three different vendors. Unfortunately, this is a pretty typical scenario that results in disparate systems that most likely don’t talk to each other. Not only is this a major challenge for the procurement people who are diligently trying to increase efficiencies, but in the end, companies often experience poor performance and higher costs.
Ready procurement for the future
In “Understanding Integrated Suites: The Example of E-Sourcing,” The Hackett Group identified a “hot topic in procurement” embraced by organizations that have made digital transformation part of their 2020 strategy. You probably aren’t surprised to hear that the topic is the trend of deploying integrated suites.
The group’s research shows that many organizations are moving toward a single, cloud-based suite that integrates functionality across both source-to-contract and purchase-to-pay processes. To get started, these enterprises often choose one functional area first, such as source to contract, which includes automated spend analysis, sourcing, and contract management.
With this approach, organizations are improving spend under management, increasing sourcing productivity, and improving process efficiency across spend categories, to name just a few. The shift to an integrated solution can also have a big bottom-line impact, as well, as a recent McKinsey report discovered. The report, “A Road Map for Digitizing Source-to-Pay,” noted that by automating not only source-to-contract processes, but the entire source-to-pay cycle, a company could reduce its spend by up to 3.5%. Imagine the significant impact that would have for companies that have annual spend in the millions.
Achieving cost savings across the globe
Global companies in almost every industry are finding they can achieve substantial cost savings by streamlining business processes, improving efficiencies, and increasing productivity. For instance, one multibillion-dollar clothing retailer used an integrated procurement approach and reduced the steps in its invoice payment process by 66%. The company also simplified reporting and data analytics to help amplify its strategic growth.
A global convenience store retailer had similar results, finding that with an integrated Strategic Sourcing process, it made smarter decisions and saved money. The retailer achieved higher efficiencies due to automating manual processes, with accelerated contract-approval processes and faster contract executions.
These companies now have greater visibility and control with a more strategic and innovative approach that delivers the potential to stimulate growth and agility – while achieving financial results like the one cited in the McKinsey report.