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Digital Procurement Strategy – 9 Stats to Consider

Digital Procurement Strategy

When Deloitte surveyed procurement professionals in 2016, the overwhelming priority for most organizations was cost reduction (74%). The study also revealed that 60% of respondents did not have a clear digital strategy in their procurement process.

Fast forward to 2019, and things seem to be pointing in a different direction. The latest Deloitte study found a clear shift in procurement, with an accelerated pace of change in digital procurement. While cost reduction remains a priority (78%), there was a clear emphasis on innovation and value as well.

So with that in mind, here are some key statistics to focus on as we move toward 2020 and beyond.

Digital Procurement Strategy and Cost Savings

1. According to McKinsey, Chief Procurement Officers (CPO) across leading organizations believe that digital procurement programs would lead to a 40% increase in annual savings on average. CPOs also expect 30-50% less time spent on transactional sourcing, and a 50% reduction in value leakage.

2. The Hackett Group found that world-class digital procurement organizations consistently outperform their peers. They incur 21% lower labor costs and over 10 times the ROI on procurement investments. A company with $10 billion in revenue could see annual potential savings totaling about $6 million.

3. Research by Procurement Leaders revealed that a fully automated procurement process could save the Global 5000 up to $86 billion a year.

Takeaway

Cost reduction has always been a big part of procurement management. Yet, emerging digital technologies are making a significant difference in savings. Leading organizations that have invested in a digital procurement strategy are seeing high ROI both in terms of costs and efficiency. 

Considering these early results, more organizations can expect to benefit from shifting to a digital procurement strategy over the next few years to achieve cost reduction and labor efficiency. 

Read more: Top 5 priorities for procurement in a 21st century business

Digital Procurement Strategy and Talent

4. The projected risk of a talent shortage is on the minds of most companies. 74% say that access to critical talent would be a “high risk” factor in the next few years. That’s second only to cybersecurity.

How to address procurement talent and skills shortages

5. According to a recent KPMG survey, “investing in technology and automation” is considered to be the most important means to address the talent shortage in procurement. When asked about their level of technological skills, most respondents rated their companies as “average-to-weak”. This suggests that they’re not able to make the most of the technology.

6. According to Deloitte, less than half of procurement executives believe that their teams have the skills and capability to deliver on their procurement strategy. Yet 72% of leaders spend less than 2% of their budget on talent development. High-performing organizations tended to spend more than 4% on developing talent.

Takeaway

The procurement process has evolved to incorporate more digital technologies. CPOs are finding that there’s a critical talent shortage in this area. Fewer people are equipped with the skills necessary to implement a digital procurement strategy. As a result, procurement talent is falling behind the technology.

Over the next few years, it will become more imperative to invest in talent development in all areas. This investment allows procurement teams to possess the skills and ability to deliver future strategies.

Read more: Top 6 Procurement Risks & How to Alleviate Them for Your Business

Digital Procurement Strategy and Technology

7. The Hackett Group identified 6 types of mainstream technologies currently used in procurement. In order of option:

  • Cloud-based applications (82%),
  • Data visualization tools (69%),
  • Master data management technologies (60%),
  • Advanced analytics (58%),
  • Mobile computing (53%), and
  • Social media (40%).

All are expected to grow in the next 2-3 years, with advanced analytics expected to grow the most.

Mainstream technologies in procurement

8. In terms of adopting the newest technologies, 38% of companies were piloting robotic process automation (RPA), which was projected to grow 4.5 times in the next 2-3 years. Blockchain came next at 33%, cognitive computing/artificial intelligence at 31%, and the Internet of Things (IoT) at 20%.

9. According to Bain & Co., 22 major digital solutions will play a role in procurement going forward. Among the most popular, prioritized solutions are: inventory management systems, multi domain master data management, e-invoicing, and spend analysis.

Top 5 digital solutions by category (Bain)

Read more: Streamline your Procurement Process | A Complete Guide

Takeaway

Many procurement organizations have already started to adopt digital technologies. We expect that adoption rates will continue to grow and, in many cases, accelerate over the next few years.

Technology will have an increasing impact on the procurement process. The most innovative and transformative solutions such as AI, blockchain, and RPA will rise as the next mainstream technologies.

Digital Procurement Will Be the Norm

The digital revolution continues to impact all aspects of the business. As a result, all signs point to a fundamental transformation in the procurement process. Early adopters of new technologies can benefit from gaining a competitive edge through increased efficiency and cost reductions.

However, as more and more organizations shift to digital procurement strategies, the competition will increase. Naturally, it will be harder to benefit purely from adoption alone. In this scenario, the keys to success will be sufficient talent development to effectively implement strategies, as well as a solution-focused rather than a product-focused approach.

A comprehensive strategy to both adopt new technologies, as well as train talent for the necessary skills, will become increasingly important over the next few years.

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