February 27, 2019

Five things procurement organizations need to improve in 2019

According to a survey from the consulting company The Hackett Group, significant "alignment gaps" exist between what procurement organizations see as critical procurement capabilities and their current abilities.

By DC Velocity Staff

There are dozens of improvement initiatives that procurement organizations could roll out to help catapult them into operational excellence from improving data and systems security to better measuring and managing value to that perennial favorite—reducing operating cost. But how can they choose which ones to prioritize?

The consulting company The Hackett Group, which specializes in procurement, has identified five capabilities that it sees as critical development areas for procurement organizations in its paper "2019 CPO Agenda: Building Next-Generation Capabilities." These improvement areas are based on the company's 2019 Key Issues Study, which involved surveying 150 executives at midsized and large (more than US$1 billion in revenue) enterprises in both the United States and abroad.

Authors Laura Gibbons and Christopher Sawchuk looked at what respondents said were the most important procurement capabilities for the year and compared them to how well the respondents said they were currently able to perform these capabilities. The areas with the biggest gaps between importance and ability were identified as "critical focus areas." These are:

  1. Improve analytical capabilities:According to the article, procurement organizations will increasingly need to use predictive analytics for such activities as spend analysis, while also starting to engage in more risk management analysis. The majority of organizations seem to be aware of this need. Fifty percent of respondents say they are already engaged in improvement programs in analytics or are planning to do so. Hackett recommends that if companies have not already done so, they should prepare for advanced data analytics programs by standardizing master data definitions and upgrading their data management architecture.
  2. Develop more strategic skill set: As procurement continues to evolve, low-value tasks will be performed by software applications and automation. As a result, procurement managers will need to develop a new skill base that includes advanced analytics and data modeling, business acumen, relationship management, strategic thinking, and risk management. This development will require procurement leaders to work with human resources organizations to design new talent development programs. In spite of the need to develop new sets of skills, only 32 percent of survey respondents said they were investing in programs that better aligned skills and talent to business needs.
  3. Make supplier relationship management more strategic: Procurement organizations need to be more strategic in how they communicate and interact with suppliers. These initiatives may include implementing digital tools or investing in supplier training and information sharing. The survey found that only 20 percent of companies are involved in such efforts.
  4. Improve organizational agility: To help procurement organizations make faster, more focused decisions, companies will need to invest in technologies such as robotic process automation and in staff with the right skills and capabilities. A quarter of surveyed companies have established an improvement program focused on agility.
  5. Become more customer centric: Rather than focusing solely on cost control, procurement must see itself as a partner to the businesses that it supports, according to Gibbons and Sawchuk. However, only 20 percent of companies are currently engaging in programs that formally focus on customer centricity or plan to do so in the next one to two years. To improve customer centricity, procurement talent should cross-train with the lines of business they support so that they have a deeper understanding of the business' needs. They should also use technology to make procurement processes faster, more efficient, and easier to understand. This may include self-service portals, a 24/7 customer help desk, and process automation.

The key to many of these initiatives will be a dual focus on implementing new digital technologies and training and developing employees.  

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