There is no question the digital transformation of procurement has the potential to dramatically affect the way business is done – not just in the UK but globally.
According to the Hackett Report the purchasing costs of global companies could be reduced by as much as one-quarter through simply switching to more efficient digital processes. But the truth is it’s not just global organisations that stand to benefit. Any business, large or small, that makes purchases should seriously consider the benefits digital solutions can offer.
The most obvious tangible benefits is that digitisation saves businesses time and money – using a B2B marketplace also provides actionable insights that will allow companies to make better purchasing choices. With this in mind you’d think all businesses would have embraced digital transformation – but the reality is we aren’t quite there yet.
According to a recent study by Amazon Business and WBR Insights – which surveyed the chief procurement officers and purchasing managers with an annual procurement volume of one billion dollars or more – the move to digital is no longer a question of if, but when. According to the survey, 84% of executives said they were in the midst of sourcing solutions and 50% consider their transformation either nearly or totally complete.
Yet even with this momentum there are barriers to shifting to digital. 50% of purchasing managers named the biggest hurdles as being budget, lack of organisational urgency and the difficulty of bringing new technology into a legacy environment.
These are all understandable challenges – so I wanted to share some thoughts on how they could be overcome. Below are my top three “quick wins” for convincing management (at every level) that digital transformation is something you need to do now:
Dip your toe in the water by focussing on tail spend
Tail spend – i.e. purchases that often take place outside formal procurement processes and are not directly required for production – may only account for up to 20% of expenses, but it often addresses 80% of all suppliers and therefore represents the greatest effort in purchasing. This is because the expenses are often decentralised, distributed among many people internally and difficult to manage, which makes the products disproportionately expensive.
The point is if an organisation begins by initially only moving the 20% tail spend over to digital procurement, it can recover this disproportionate cost and put the surplus towards moving over the remaining purchasing portfolio to digital shopping later on.
Let millennials champion the cause
Another quick win, and an effective way for businesses to integrate new technology while instilling a sense of urgency, is by inviting millennials (who were born in the 80s and 90s) to champion the implementation process.
According to a recent study by Merit, more than 70% of 20-35-year-olds are involved in product or service purchase decision-making at their companies, with one-third reporting they are the sole decision-maker for their department.
These digital natives use the latest technologies and are familiar with digital shopping in their personal lives. They grew up exposed to shopping apps, comment functions and product reviews, and are already accustomed to the benefits of online shopping, such as a wide selection, transparent comparison options and fast delivery.
Millennials are able to transfer this shopping experience into the B2B world. Considering their propensity to adopt positive change and innovation, they are best placed to help integrate new technology.
It’s not rocket science – implementation doesn’t need to be a headache
Integrating procurement into the digitisation of purchasing and effectively managing it through a B2B marketplace isn’t complicated. Integration with existing purchasing systems, such as SAP, is generally quick to implement – so it’s possible to set things up relatively quickly without huge expense.
While these three tips may help you move the pendulum forward, the reality is the benefits of digitisation should be tangible and speak for themselves. Procurement may not be at the top of every CEO’s list of priorities – it may not be “sexy” – but cost saving and innovation often is.
By bringing your different procurement and purchasing options under one digital roof not only can you manage things better, but you can make stronger analytical decisions that may have a far-reaching impact on transforming your entire company. But until you make the leap, you won’t know.
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This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content.
Integrated People Solutions is an executive placement firm in Denver, Colorado, and is part of the Kennedy Executive Network
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15 August 2019 by Dave Brittain