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Supply Chain News: To Outperform, Procurement Organizations Must Add More Value, Embrace Digital Transformation

 

Move Transactional Work to Shared Services, Create Procurement COEs, Hackett Group Says

 

Oct. 25, 2016
SCDigest Editorial Staff

The procurement discipline has made major strides over the last decade, but a changing environment means most must continue to transform their organizations to keep their seat at the corporate executive level.

That is part of the message from a new report from The Hackett Group on priorities for procurement (Five Imperatives for Creating Greater Procurement Agility).

Supply Chain Digest Says...

A second imperative is to embrace digital transformation, Hackett says. What does that mean? All kinds of technologies, it turns out.

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SCDigest will look at two of those imperatives in this article, starting with what Hackett says is the need reallocate procurement resources from a transactional focus to "value adding."

Many companies still focus too much attention and resources on transactional work and not enough on higher value activities such as analytics, performance management and devising purchasing strategies that drive business results, Hackett says.

To do so, procurements organizations will need to make changes to both structures and process, Hackett says. A basic step is the adoption of a "formal service delivery model, which promotes clear roles and responsibilities and ensures that capabilities and costs of resources match the type of work performed."

Two foundational aspects of such a formal service delivery model are: (1) global business services/shared services units, and (2) centers of excellence (COEs).

A recent Hackett survey found that 39% of all procurement organizations have some form of COE in place today, as shown in the graphic below, which also shows 64% of procurement organizations say that they have recently undertaken or are planning major transformation initiatives.

To make this pivot to greater value-added activities recommends the following:

Move to leveraged model for procurement and P2P operations: Having concentrated resources performing administrative and transactional work enables greater standardization and quality, more focus on service, and cost reduction through better economies of scale and labor arbitrage.




Focus COEs on high-value programs and expertise areas: Focus COEs on creating strategies and programs that enhance procurement's capabilities to both run the function better as well as to provide the business with better methodologies and tools.

 

Upgrade the skills of procurement's staff to drive higher value: Recruit staff from key business units in your company to serve a stint in procurement. To build business acumen more broadly, assign staff to cross-functional teams to provide exposure to different parts of the organization's operations and make understanding of business fundamentals a requirement in hiring procurement staff.



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A second imperative is to embrace digital transformation, Hackett says. What does that mean?

All kinds of technologies, it turns out. Hackett says that "Cloud-based infrastructure and applications, virtual business and technology networks, and business analytics are coming together with rapidly transitioning employee and consumer bases that are increasingly adept with new mobile technologies and business models."

This technology convergence is creating tremendous new opportunities for procurement organizations to apply digital technologies to transform service delivery, providing a platform for delivering a whole new class of services, such as information and predictive analytics to guide decisions, Hackett says. Digitally-enabled processes also reduce errors and make information easier to access, freeing procurement staff for higher-value work as called for in Hackett's first imperative.

Again, Hackett offers recommendations for making a digital transformation in procurement:
The following steps can be taken to further the digital transformation imperative:

Create a procurement technology strategy: Design a technology strategy,
implementation roadmap and data architecture for building a platform for delivery of a
comprehensive set of procurement services. Including performance measurement and
analytical capabilities is essential.

Partner with the IT group: Work closely with IT leadership to create long-term procurement technology strategy, architecture and implementation plans. Recruit and train procurement staff to assume greater responsibility for technology management and usage. Identify specific business-related goals for the use of procurement technology.

Create a technology roadmap: Design an implementation plan that defines desired strategic outcomes, key performance indicators (KPIs) and needed behaviors. The roadmap should support the business case for procurement technology, identifying the most logical connections between technology and achievement of strategic objectives

Summing it up, Hackett says companies should "Move as much administrative and transactional work as reasonable into shared services units; use centers of excellence for strategy, program and subject matter expertise; and deploy business partners with skills to advise senior business managers on human capital issues driving business performance."

The returns from such strategies and investments are generally substantial, Hackett says.

Are Hackett's recomendations to move to a more "value-added" procurement model and to adopt a digital transformation practical? What are you seeing? Let us know your thoughts at the Feedback section below.

 

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