Digital technologies are paving the way for procurement teams to play a larger strategic role in accelerating business innovation, according to senior officials at Bain & Company.
“Leading companies are already using digital tools to transform the way their procurement teams work. Artificial intelligence and robotic process automation are automating manual tasks and freeing up time for more strategic activities,” said Dr. Houssem Jemili, partner with Bain & Company’s Digital Practice and David Schannon, partner with Bain & Company’s Performance Improvement Practice.
“Many companies have only just begun experimenting with digital tools. Fewer than 10% of companies have deployed procurement solutions based on key technologies such as big data, the Internet of Things, serverless architecture or blockchain technology, Procurement Leaders’ research shows. For workflow assignment and supplier relationship management (SRM), more than 60% have no tools or rely primarily on improvised systems. For risk management, stakeholder management, category management and information sharing, that figure rises to more than 70%,” they added.
“That’s a missed opportunity in cost savings and competitiveness. Research conducted by Procurement Leaders shows that a fully automated procurement function could save the Global 5000 up to $86 billion annually. For companies with a spending base of $1 billion to $3 billion, that implies $12 million in annual procurement headcount savings. Those that spend $3 billion or more would save an average $27 million on headcount,” Jemili and Schannon pointed out.
In their opinion, digital technologies also provide a competitive edge by improving the speed and quality of procurement, reducing risk and enhancing innovation. As supply chains go global, they have become increasingly complicated and integrated, and the lines between suppliers, partners and customers are blurring.
“Companies have been slow to embrace digital technologies within procurement for several reasons. Many have had a bad first experience implementing digital solutions. For others, the return on investment (ROI) isn’t clear. But the business case for digital procurement is growing clearer as companies gain experience with these technologies and track their performance. One key signal is the amount of capital investors are pouring into the development of digital procurement tools, betting they will produce significant value. Global investment in digital procurement including venture capital, private equity and other forms of investment totaled $475 million in 2017, up from $378 million in 2014.”
The officials also said that procurement executives can start to assess the opportunity digital technologies offer by understanding how they support three broad areas of change: automated processes, frictionless collaboration with suppliers and other stakeholders, and smarter procurement based on richer data sets. They can build a sound digital strategy by choosing digital tools that have a proven track record in the market. A Bain survey of 243 procurement professionals rated 22 digital procurement solutions and ranked them by their proven success in the market and importance in the coming five years. The tools that scored high on customer satisfaction, for example, include supplier quality management, e-invoicing, transport optimization and collaborative data platform. These are solutions that have a higher likelihood of successful deployment and can help build momentum for digitizing procurement.
That’s not all: a comprehensive digital procurement strategy can also help reduce costs and free capacity for more strategic activities, they said.
“Five years from now, CPOs may feel amazed about the increasingly strategic nature of their role. But not every company will make the transition. Procurement executives are standing at a crossroads today. They can either lead change by adopting digital solutions and developing new capabilities, or they can wait on the sidelines and react to a shifting landscape.”
Leaders that are able to make this strategic shift will not just reap big gains in efficiency. They will lead in transforming the role of procurement and help enable a digital vision for the entire company,” Jemili and Schannon added.