Procurement Outlook in 2019: The Shape of Things to Come — Zycus Procurement Blog
Another year has rolled by leaving the same writing on the wall as 2017, only this time, it’s louder and clearer: Digital transformation has well and truly arrived at procurement’s doorstep.
But, truth be told, it has, up until now, merely received a lukewarm welcome.
In 2019, that could change. The winds of digital transformation are slowly, but surely, turning the wheels of procurement. Savvy procurement teams are beginning to acknowledge its benefits. This, for instance, is evident from how procurement teams are beginning to perceive digital transformation.
Consider this: A recent Hackett Group study titled, 2019 Procurement Key Issues has revealed that digital transformation is a critical goal for a majority of procurement departments in 2019.
That’s because, over the years, digital transformation has moved its way up the ladder in the procurement department. In 2018, more than 90% of procurement professionals believed digital transformation will fundamentally shift the way procurement services are getting delivered within two to three years, according to a Hackett Group survey. Compared to 2017, this number has increased more than 10%.
What’s also remarkable is that, in the last two years, the percentage of organizations having a formal strategy for digital transformation becomes more than doubled year over year, from 32% (2017) to 66% (2018). In the same period, the number of organizations indicating they have the resources to handle the transformation has also increased, from 25% (2017) to 46% (2018).
It’s a clear indicator that in 2019 the gap between the promise of digital transformation and leveraging it to its full potential will narrow.
At the same time, the gap between CPOs who haven’t yet embraced digital transformation and high-performing procurement organizations who have already gained a first-mover advantage will widen. They’ll have a lot of ground to cover to keep pace with the latter.
But what’s triggering this uptake?
Digital Transformation: Coming of Age in 2019?
This progression is piggybacking on technology’s influence on consumers and their expectations, and sometimes, technology itself. Today, Artificial Intelligence-based apps are automating repetitive tasks like invoicing (e-invoices), thereby freeing up resources for innovation. The power of analytics in risk assessment and spend analysis will help procurement teams save costs and make informed decisions. This will give CPOs a seat at the business strategy table.
It comes as no surprise then that procurement leaders believe advanced analytics adoption will attain close to 60% impact growth in the next two years, according to the Hackett Group’s findings.
Another technology, IoT (Internet of Things) — machines connected to the internet —
In warehouses, for instance, IoT-connected devices will keep track of deliveries. This, in turn, will help procurement teams track the individual performance of suppliers with greater accuracy. It will also help in gathering real-time feedback from customers, which can enhance customer experience and provide a competitive edge.
This is significant because, year-on-year, customer focus improvement and product/service portfolio innovation have featured in the list of top three major initiatives in 2018 and 2019.
That will have an impact on the adoption of procurement technologies like e-procurement, e-invoicing, contract lifecycle management, and supplier relationship management, in order to better customer and stakeholder experience. According to the Hackett Group’s study, between 2019–2021, these bunch of technologies will see significantly increased adoption as more CPOs realize the need and the potential of digital transformation.
But in order to get there and meet customer and business expectations, today’s Procure-to-Pay processes (P2P) need to be agile and have the ability to streamline user experience, according to the Hackett Group.
How can procurement teams do that in 2019? What are the trends shaping procurement in 2019? What challenges will they face?
An exclusive webinar titled, Hey Nineteen: Procurement’s Playbook for 2019, has all the answers. On 29thJanuary, at 1 PM, join an esteemed panel of experts: Chris Sawchuk, Principal and Global Procurement Advisory Practice Leader, The Hackett Group; Brittany Muirhead- Director, Procurement Strategy, Brookdale Senior Living Inc, and Richard Waugh- VP, Corporate Development, Zycus. The webinar is presented by Zycus in association with SIG.
The webinar will feature the findings from The Hackett Group’s 2019 Procurement Key Issues survey and a case study presentation that highlights how Brookdale Senior Living has leveraged assisted sourcing as part of its digital transformation journey.
Find out what procurement heads, like you, need to do to help your team and business achieve their goals this year.
Data Source: The Hackett Group
The world of procurement has undergone tremendous changes from the past couple of years. It is now time to look at what 2019 has in store. The New Year seems to be shaping up the procurement trends which were already started in 2018 or earlier and are expected to gain maturity in the coming year. Here is the list of top 7 procurement trends that we need to look out in 2019 –
Procurement Trend 1- Having a ‘Digital Strategy’ in Place
For long, the rise of digital technologies and its positive impact on procurement has been projected as a procurement trend. In 2018, we saw organizations finally moving to adapt to cognitive procurement technologies such as Big Data Analytics, Machine Learning, Natural Language Processing, Artificial Intelligence, and Robotic Process Automation. The year 2019 will further enhance the usage of these technologies. From automating redundant procurement tasks to empowering C-Suite in decision making, from better market visibility through product innovation to increased profitability, the benefits of digital technologies are enormous. As per a Hackett report, which surveyed 180 large companies, merely 32% of executives have implemented a digital strategy. This is in stark contrast to the fact that nearly 85% of them believe that digital transformation will fundamentally change the way they deliver services over the next 3–5 years. Though organizations realize the importance of digital procurement, the question of the hour is ‘Have they been working towards it in the right direction?’ Hence, to realize the maximum value, organizations have to take the leap from manual to digital transformation with a proper strategy in place. They need to invest in the right infrastructure, processes, and resources with a vision that aligns with the organization’s objectives in the long term.
Procurement Trend 2 — Building Talent Pool to Embrace Digital Technologies
Procurement function has to move from delivering cost savings to providing a strategic edge to the organization. To build a holistic supply chain and to drive enterprise-wide cost reductions, procurement has to utilize the maximum value out of digital technologies. The Deloitte CPO Survey 2018 shows that procurement leaders remain hesitant to deploy new technologies like AI, Robotic Automation and Blockchain in their day to day work. As per the survey, 51% of the procurement leaders believe their teams do not have sufficient capabilities to deliver on the digital procurement strategy. Hence, in 2019, the organizations especially the procurement functions is going to focus on finding the right talent and at the same time grooming the in-house resources through specially designed training and skill development programs. Procurement professionals would need to acquire the critical skills to succeed in a digital world and to remain relevant in the market.
Procurement Trend 3 — Thinking Suppliers Beyond the Price
Collaboration with suppliers remain a critical approach for all these years. With advanced technology and the changing landscape of supplier management, procurement function has shown the tremendous scope of improving the relationship with suppliers. Now, buyers cannot afford to communicate with suppliers just over the price. They need to involve them in more strategic decisions right at the initial planning phase. Suppliers thus become an integral part of any supply chain and can play a pivot role in making/breaking the backbone of the procurement. In 2019, more focus would be given in improving work synergies with suppliers. Suppliers will have visibility of all the steps in the procurement cycle to help in getting the best pricing and reducing the risk quotient. This transparency will not only support the suppliers to feel empowered but will also promote healthy competition between all the suppliers eventually benefiting the organization.
With the empowerment of Suppliers, it also becomes necessary to have a reliable supplier performance evaluation plan in place. This plan stands for a focused, smart and effective method of measuring, analyzing and improving supplier performance and thereby reducing costs, increasing efficiency, enhancing vendor relations, enhancing business performance, preventing product issues and driving improvements in the supply chain.
Procurement Trend 4 — Risk Management — Preparing for the unexpected
From Brexit to trade wars (the US imposing tariff sanctions on China) to fluctuating oil prices, major world economies are continuously thriving to be prepared for the unexpected. With these uncertainties, procurement function would be at the forefront of an organization for risk minimization. Procurement in 2019 will have to remain at the top when it comes to minimizing the supply chain costs. It will require bringing in innovation and technology interference to save costs wherever necessary. Moreover, organizations are always struggling from internal risks arising due to lack of transparency. Being compliant with legal standards is just not enough these days. With social media and word of mouth being the biggest influencers in today’s times, organizations have to be extra careful when it comes to ethics and compliance. As per the whitepaper by Zycus “Ensuring Efficient Supplier Risk Management with Supply Chain Transparency,” only 65% of the procurement leaders have little or no visibility in their supply chain. A transparent system not only reduces exposure to risk but also reduces the information gap that helps in managing risks more effectively.
Procurement Trend 5 — Increasing Focus on Indirect Spending
Focus on indirect spending has always been on the radar of procurement function though recently more and more organizations are readily putting efforts to control it. Indirect spending or tail spending follows the 80/20 rule, i.e., it constitutes 20% of the organization spent and involves 80% of the suppliers. Due to the involvement of a large supplier base, processes under indirect spending need to follow a holistic governance process to avoid leakages, various contract terms, paperwork, and dealing with a big chunk of suppliers’ information. The whole process becomes so cumbersome that an organization eventually loses out on opportunities such as dynamic discounting, budget accuracy and supply chain visibility. As a result, in 2019, more organizations would look out for automated financial solutions including Procure-to-pay (P2P) solutions that would be integrated with the organization’s Accounts Payable (AP) processes. The solution will minimize the maverick spending by negotiating the critical contract terms well in advance suppliers and streamline the complete contracting process.
Procurement Trend 6 — Rising Artificial Intelligence (AI) systems
AI will not remain just a procurement trend in 2019 with more and more organizations going to adopt in their processes. Procurement teams will design and deliver intelligent bots to complete most run-of-the-mill procurement tasks with minimal human intervention. From managing large-volume of orders to running repetitive sourcing events, from negotiating with suppliers for low-value items to updating inventory lists, AI will undertake all these activities thus putting mundane tasks on auto-pilot mode. Products like Zycus’ Merlin A.I. Studio can quickly scale up the procurement process, using multiple pre-packaged procurement bots as well as an easy-to-create bot store.
Procurement Trend 7 — Moving to Effective Change Management
Procurement leaders have time and again agreed change management being the biggest roadblocks in achieving the outlined procurement goals. With the advent of digital technologies, the transactional work in a procurement function is becoming automated. As a result, the extra time available due to automation can be deployed by resources in more strategic activities that a business needs. But the transition to change management is not easy, as it brings a sense of insecurity about the end state and hence resistance to undertake new initiatives. In 2019, more organizations will focus on a smooth change management plan through increased focus on regular communication with the employees; engage them through the process and by providing adequate training and support.
As procurement is gaining more strategic importance within an organization, the expectations from this function are also increasing. This year, procurement function will continue to deliver on traditional cost savings while focusing heavily on digital technologies and supplier synergies. Overall 2019 seems like a promising year full of challenges and opportunities for procurement to undertake.
Originally published at www.zycus.com on January 22, 2019.