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The Hackett Group: Digital Transformation Can Enable Typical Procurement Organizations to Reduce Cost by 45% As They Deliver Greater Value, Improve Customer Experience

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Through full deployment of digital tools, typical procurement organizations can reduce operational costs by up to 45%, 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, according to new research from The Hackett Group, Inc.

“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”

World-class procurement organizations, which spend 22% less than their peers, can also reduce costs by an additional 33% with comprehensive digital transformation, according to the research. This ‘breakthrough’ can free up resources enabling world-class procurement organizations to further digital transformation initiatives, engage in more value-added activity, and/or fuel company growth.

The research details The Hackett Group’s new “Digital World Class” analysis, an estimate of the additional benefits that world-class procurement organizations can achieve through the combination of operating model changes, full technology landscape optimization, and the successful adoption of digital technologies.

The Hackett Group’s research concluded that procurement organizations can reap significant benefits by taking a simpler interim approach. By deploying smart automation technologies such as robotic process automation, smart data capture, and cognitive automation, typical procurement organization should expect a 17% cost reduction, while world-class procurement organizations can reduce an already competitive cost structure by additional 21%.

By taking a customer-centric approach to service delivery, world-class procurement organizations are also able to deliver far greater business benefit to their companies, the research found. While operating at lower cost, world-class procurement organizations also see higher effectiveness and improved customer satisfaction.

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The research also updates The Hackett Group’s service delivery model for world-class procurement, detailing how in addition to technology, procurement organizations must focus in other areas to truly achieve transformation, including: service delivery; analytics and information management; organization and governance; service partnering; and human capital.

A public version of the research, “World-Class Procurement: Redefining Performance in a Digital Era,” which contains nearly 70 metrics detailing the performance of typical and world-class procurement organizations, is available on a complimentary basis.

“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 with 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.”

World-class procurement organizations have also realized that digital solutions deliver effectiveness benefits, reducing human intervention in routine, rules-based processes, and driving lower error rates and other benefits, the research found. World-class procurement organizations influence 93% of spend (compared to 64% for the peer group) and generate 75% more savings via cost reduction and cost avoidance. One key here is a focus on standardization of end-to-end processes.

For 2019, The Hackett Group’s world-class procurement research breaks out customer experience as a separate area of analysis, measurement, and transformation focus for the first time. Digital-era customer experience metrics move beyond simple customer satisfaction surveys to assess the view of the consumer. World-class procurement organizations are over 4x more likely to be perceived by stakeholders as an integral and valued business partner, and more than 2x likely to be seen as an expert.

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According to The Hackett Group Principal & Strategic Sourcing and Procurement Practice Leader Robert Derocher, “The benefits of getting to digital world-class are clear. But the how of getting there is also critical to consider. A holistic transformation plan describing how to engage and partner with the business is key. Our updated world-class service delivery model describes all the elements that must come together in parallel with technology transformation.”

“Procurement must change its service design approach, so that processes meet customer needs and desires,” said Derocher. “They must improve analytics, to provide more informed guidance, manage risk, and identify opportunities. They must look at organization and governance, and consider the best overall organizational structure to support their business. Service partnering is critical, as procurement must have strong relationships with external business partners, such as offshore service providers. And human capital is key, because staff need new skill sets to succeed, requiring procurement to create a culture of continuous learning.”

World-class procurement organizations are those that achieve top quartile performance in both efficiency and effectiveness across an array of weighted metrics in The Hackett Group’s comprehensive procurement benchmark. Digital world class is The Hackett Group’s estimate of the additional benefit that world-class procurement organizations can derive from full technology enablement of execution of procurement work and optimization of the procurement technology landscape. The Hackett Group’s world-class procurement research is based on an analysis of results from recent benchmarks, performance studies, and advisory and transformation engagements at hundreds of global companies.

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