Procurement leaders embrace digital, but budgets lie flat

Dive Brief:

Two-thirds of procurement leaders — double the percentage of last year — have a digital transformation strategy in place, according to research from the Hackett Group emailed to Supply Chain Dive. Applications of automation and artificial intelligence (AI) are expected to increase in the next two to three years.
Budgets, however, paint a more dismal picture. The Hackett Group's report predicts procurement budgets will "remain virtually flat in 2018."
Respondents to the survey listed cybersecurity and lack of access to critical talent as their top risks for 2018 and 2019.

Dive Insight:

Although chief procurement officers (CPOs) are realizing the vast benefits of digital transformation, they're not forgetting the risks that come along with tech-heavy processes.

"Organizations are ... aware that the relentless wave of data attacks with continue," the report stated. Cyber threats are even more in the spotlight recently with Facebook's Cambridge Analytics scandal and a data breach on Saks and Lord & Taylor stores. "In parallel with finding more and better ways to use data, companies must take the steps necessary to protect it," the report said.

Despite an overwhelming majority of CPOs (95%) believing in the potential of digital solutions to transform procurement, most company initiatives continue to focus on cost reduction. Nearly three-quarters of companies listed "enterprise operating cost reduction" as a major enterprise initiative for this year, and another 56% pointed to selling, general & administrative expense (SG&A) transformation or cost optimization.

The results mirror a recent study by Deloitte, in which 78% of CPOs said cost reduction was their top priority. This focus on cost reduction may stem from traditional sourcing strategies of "low cost at all cost," but operating budgets certainly aren't helping to change that mindsets.

The Hackett Group says procurement budgets will be reduced by an average 0.3% this year. Adopting new automation and AI is next to impossible without access to the funds needed to invest in these emerging technologies.

Another factor that could hinder digital transformation: a lack of talent to make that transformation happen. 74% of companies ranked "access to critical talent" as a high risk. While some CPOs are considering adding non-traditional roles, such as data scientists, to their groups, the number is relatively small, at 28%.