Report: Procurement offices can see 45% cost reduction with digital transformation

Dive Brief:

Procurement offices that start using smart automation technology can see cost reductions of up to 17%, but when organizations undergo more complete digital transformations savings can reach 45% or higher, according to a new report from The Hackett Group.
Taking humans out of the loop for routine and repetitive processes can also help to reduce errors. Technologies like robotic process automation (RPA) can be used to automate some of these functions. "Fewer handoffs mean fewer mistakes," the report notes.
The question for organizations is how to invest these cost savings. They could be reinvested into employees to have them do other tasks, which is what Hackett has largely seen happen, but this could change depending on the economy, Christopher Sawchuk, a principal and global procurement advisory practice leader at The Hackett Group, told Supply Chain Dive in an interview.

Dive Insight:

The report broke down the benefits of digital transformation into a peer group and a world-class group, the latter of which are the top quartile of organizations in terms of effectiveness and efficiency, Sawchuk told Supply Chain Dive in an email.

The cost savings for these world-class organizations is even greater — up to 43% with automation and 55% with a full digital transformation, according to the report. Automation here refers to the use of RPA and other technologies that can replace human workers with bots, but digital transformation considers a company's technology suite more "holistically" and even includes potential restructuring.

World-class organizations are the top quartile of firms in terms of effectiveness and efficiency, while the peer group are the remaining companies.

Matt Leonard / Supply Chain Dive, data from The Hackett Group

Organizations investing in technology are not seeing similar investments in human headcount, but that doesn't mean the need for more people is lower than the need for technology. This shows that technology allows humans to be freed up to do other work the company needs to get done, Sawchuk said.

Hackett has created a digital service delivery model that looks at the various components that it says should be considered when making this kind of transition. Technology is part of the consideration, but employees, service partnering and analytics are other important aspects for a digital procurement shift.

The Hackett Group, "World-Class Procurement: Redefining Performance in a Digital Era"

These changes will aid companies in speeding up their procurement processes.

"What we're seeing in this environment is speed is becoming much more important to organizations than it may have been in the past, as well as agility," Sawchuk said.

When it comes to analytics one of the first things a company should look at is spend by supplier, Sawchuk said. This information could enable firms' ability to consolidate spending across the organization and leverage it in negotiations. Organizations falling into the world-class category in the report were more likely to have this kind of visibility into spend data by supplier.

As organizations collect more of this information it will allow them to move into more advanced analysis using methods like machine learning. And technology like natural language processing could work together with RPA to make reviewing documents a fully automated undertaking.

However, deciding how to go about a digital transformation will be different for every company. There is no "off-the-shelf game plan," AT Kearny wrote in a 2018 report on procurement technology. One possible result of this transition, according to AT Kearney, is "procurement staff will be vastly reduced, and those that survive will do so because they already possess or are willing to learn different skills than what is necessary today."