Hackett Group: procurement transformation cuts costs by 45%
In the past, the transformation or re-structuring of a business department, the process was primarily driven by the desire to cut costs and increase efficiency. Now, there’s no denying the fact that the entire industry and approach is shifting dramatically as companies come to understand the potential that their supply chains and procurement divisions have to be value creators.
“The digital transformation of the supply chain is real, and is creating roles that never existed before, like digital transformation officer, chief supply chain officer and chief procurement officer that are specific to supply chain procurement - not indirect procurement,” says Tom Kieley, CEO of supply chain software solutions company SourceDay.
But how do companies looking to reap the rewards of a digitally transformed supply chain and procurement function go about taking the first steps - or picking up the pace - along that road.
This week, Miami, Florida-based strategic consulting firm the Hackett Group shared the findings of its latest report. Through the deployment of digital tools, procurement organisations can reduce operational costs by up to 45%, the report says, achieving efficiency levels below those of today’s world-class procurement organizations while at the same time enabling them to improve effectiveness and customer experience.
The report also notes the best areas of developing technology that will provide the most immediate and impactful benefits to adopters. Average procurement companies that deploy smart automation technologies, such as robotic process automation, smart data capture, and cognitive automation can expect a 17% cost reduction.
“In response to the pressures of rising demand, disruptive tech, and intensified competition, procurement is turning to digital transformation. And as our research shows, the potential is there for even the best procurement organizations to use digital to dramatically improve efficiency, effectiveness, and customer experience,” said the Hackett Group Principal & Global Procurement Advisory Practice Leader Chris Sawchuk. “Few procurement organizations are there yet. But many are already engaged in smart automation, which represents the first steps on this path. Smart automation can generate real ROI quickly while procurement continues the longer journey to full digital transformation.”
Among other factors, like spend efficiency and customer relationship strategies, digital transformation strategies can make the difference between what the Hackett Group identifies as typical and world-class procurement organisations.
Will Public Procurement Budgets Increase in 2021?
Procurement is more than just a private enterprise. COVID-19 reminded us that sourcing materials is an essential part of the government’s role. Throughout 2022, tiny departments sourced massive amounts of personal protective equipment (PPE), medical supplies, and emergency vaccines and testing kits. Even non-procurement professionals were pulled into the fray, as frantic timelines demanded nothing less.
According to Celeste Frye, co-founder and CEO of Public Works Partners, the crisis brought procurement to the attention of skilled employees who had never considered it. As non-procurement personnel stepped up to help their coworkers, many found that they’d stumbled upon a critical and rewarding job. “Existing public employees have seen the essential nature of the work”, Frye said. “[They’ve] gained some critical skills and possibly [grown] interested in pursuing procurement as a longer-term career”.
Small, Local Suppliers Take Charge
Frye, whose firm helps organisations engage stakeholders and develop long-term procurement strategies, thinks it well worth the effort to open one’s mind to new opportunities. Cooperative contracts, for instance, can help public departments and municipalities save money, time, and effort. By joining together with other towns or cities in the region, public procurement teams aggregate their purchasing power and can drive better deals.
These cooperative contracts have the added benefit of advancing equity. Smaller suppliers that struggle to compete with established firms for government contracts can act as subcontractors, helping big suppliers fulfil bits of the project. Once they get their foot in the door, small, local, and disadvantaged suppliers can then leverage that government relationship to take on additional projects.
Especially as governments start to pay attention to procurement resilience, public procurement departments must expand their requests for proposals (RFPs) to take into account innovative solutions and diverse suppliers. According to Frye, Public Works Partners—a certified female-owned firm—has benefitted from local and state requirements that specify diversity.
Post-Pandemic Funding Swells Procurement Budgets
And the pandemic won’t be the end of it. City governments need to build sustainable energy infrastructure such as solar panels, charging stations, and recycling plants, ensure that masks and medicines are never in short supply, and source new technologies to keep up with cloud and cybersecurity concerns.
Public procurement budgets will likely increase to match demand. As Peter Ware, Partner and Head of Government at Browne Jacobson, explained, “in a non-pandemic world, the [U.K.] government spends on average around £290 billion on outsourced services, goods, and works...anywhere between 10% and 14% of Gross Domestic Product (GDP). Post-pandemic, city procurement will only increase as national governments provide local divisions with emergency funding.
And in truth, government employees might jump at the opportunity. Frye noted that public procurement could give immediate feedback on new programmes: “[Procurement] is where new laws and policies ‘hit the road’ and are implemented”, she said. “Professionals in these fields get the satisfaction of creating real change and seeing quantifiable outcomes of their work”.