Procurement making strides in digital transformation journey
Procurement organisations have made significant strides with their digital transformation journeys over the past 12 months, although there is still plenty of room for improvement, according to a new study.
Research from the Hackett Group found that procurement leaders expect to rely on digital transformation to help them achieve an array of critical objectives in 2018, including cost-cutting, improving agility, and improving their ability to serve as a trusted advisor to the enterprise.
Procurement organisations are expected to dramatically increase their use of robotic process automation and AI related technologies (i.e., cognitive, machine learning, virtual assistants) over the next two to three years, the research found, as they also expand their use of more mainstream technologies such as cloud-based applications, advanced analytics, data visualization, and mobile computing.
But their ability to execute digital projects will require reassessment of competencies and realignment of resources, as procurement budgets are expected to remain virtually flat in 2018, the research found.
In addition, while procurement leaders acknowledge the importance of strategic enterprise objectives, including expanding procurement’s influence, elevating the role of procurement, and improving agility, procurement’s ability to address them is low.
The Hackett Group’s research identified four key capability areas where procurement must improve in 2018: aligning skills and talent with changing business needs; measuring and managing procurement performance and business value; obtaining more value from existing suppliers through relationship management; and obtaining more value from existing categories through category management.
These key capability areas reflect the need to continually innovate and expand collaboration by investing in resources and technology that promotes actionable intelligence, improves the user experience, and enhances supplier collaboration.
“Last year, procurement leaders told us that digital transformation was a priority. But most simply didn’t have the strategy and resources in place to move forward,” said Chris Sawchuk, The Hackett Group Principal & Global Procurement Advisory Practice Leader.
“This year, that gap has closed significantly. Momentum is growing. More organisations are planning for digital transformation and more are in a position to do something about it. But a significant number of companies have not gotten there yet, and digital transformation has the potential to be such a game changer that these procurement organisations are at risk.”
Virtually all study respondents (95%) said that they now believe digital transformation will fundamentally change the way procurement services are delivered within two to three years. A full 30% said that they expect procurement processes will be touched by digital transformation activity in 2018, foreshadowing a year of both benefits and disruption.
The percentage of organisations with a formal strategy for digital transformation more than doubled year over year, from 32% to 66%, and the number of organisations indicating they have the resources in place to handle the transformation also rose sharply, to 46%.
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”.