The Procurement Monthly – August 2023
Each month ill review articles, research papers and webinars, and provide you with a brief summary of the most important papers, what they contain, what they may mean and try to draw some parrels between them.
This annual report looks at and quantifies the impact that digital world class procurement functions have over their peer group. The Hackett Group defines Digital World Class® organizations as those that achieve top-quartile performance in business value (a composite of stakeholder experience, digital enablement, and traditional effectiveness metrics) and operational excellence.
The report states that Digital World Class procurement organizations run at a 21% lower cost than peers – a $6 million advantage for a typical $10 billion enterprise – with 32% fewer fulltime equivalent (FTE) staff. Just as significant, they deliver greater value – for example, 96% higher spend cost reduction savings. As a result, they are 86% more likely to be perceived as a valued business partner.
In operating costs most of the reductions sit in the labour element, whereas the increase is in technology. In Labour element, there is less in operations and compliance, and sourcing as the teams have automated and let their digital solutions deliver the value. Interestingly there is an increase in planning and strategy FTE.
So, what do you get for digitising beyond operating with a 21% cost and 32% FTE advantage?
They dissect these into these 5 areas.
- Effectiveness – from cost savings to lower saving leakage
- Experience – nirvana for procurement is to be considered a business partner and be aligned to organisations – 86% are more likely to be viewed as a business partner.
- Enablement -7 x higher use of auctions
- Efficiency lower costs per order, quicker transaction times and sourcing times
- Automation – greater use of electronic invoices, transaction processed electronically.
This study from North Carolina and GEP looked at how organisations were handling sustainability imperatives in face of disruptions and cost pressures. The pressure for ESG improvements is increasing and unrelenting, despite the economic pressure companies are experiencing, however balancing these seemingly competing demands, even in the best of times without disruption, is immensely complicated. Even the companies that are leaning into implementing sustainability initiatives and goals into their supply chains are struggling.
We consider supply chain resiliency, diversity, and sustainability as complementary capabilities.
Some interesting takeaways:
- Chief supply chain officer (CSCO) (9%) is now more responsible for sustainability than chief sustainability officer (4%) or chief financial officer (CFO) (6%) – CEO overall is primarily responsible (32%)
- Today, only one-quarter are focusing on Scope 3 emissions, which account for 80% of total emissions whereas 38% are focussing in recycling.
- Many are not prepared for new regulations coming, as they fall in the bottom half of the drivers (operational improvement and cost reduction are at the top)
- Reflecting the economic situation, Cost is king: Cost reduction drives supply chain investment and KPIs for environmental performance.
In this over 400 organisation survey World CC sought to uncover the status of AI adoption in contracting, to reveal the benefits realized for those who have already implemented the technology, to expose the barriers to adoption and unveil the true nature of attitudes.
“I believe that most of the short-term claims being made about the impact of ChatGPT and generative AI hugely overstate its likely impact. More significantly, I think that most of the long-term claims hugely understate its impact.”
Richard Susskind, President, Society for Computers and Law
The survey through up some interesting findings. 31% had or were planning to implement AI, 61% had not, and 17% had banned its use! Biggest barriers of use were Security (25%) and low priority (18%), as well as many others awaiting policies to be developed (which is high up in the usage charts).
In terms of where the value was, Metadata extraction led with a 44% implementation rate underscoring the value that can come from streamlining data collection. Clause extraction follows closely at 39%, indicating a focus on leveraging AI for more efficient contract review and understanding. Contract analytics and automation, adopted by 38% of respondents, shows the burgeoning interest in capitalizing on AI’s predictive and automation capabilities.
The economist survey identified improving efficiency as a major benefit of deploying emerging tech (like AI) and the report concurs with 68% identifying time reduction of contracting lifecycle being the biggest benefit and 38% identifying cost savings.
This was an interesting webinar and report about the future of supplier management and identified that organisations are wanting to transform not only the relationships with suppliers themselves but also the way they measure and manage them. SAP identified this in the Economist Impact survey (and there is a separate soon to be released supplier management paper coming) but this webinar also revealed some interesting research points.
Technology has not been uniformly deployed across all parts of supplier management, notable more frequently deployed on Onboarding, Supplier information and supplier data, but missing largely on performance, relationships, and risk. In fact, according to their research, 85% of respondents use spreadsheets or nothing for relationships, and 77% the same for performance. The report goes onto say that many organisations use ratings providers (69%) to manage supplier financials, but 2/3 don’t use a tool to gather environmental or diversity information.
The main reason for this, apart from budget (69%) are lack of integration with ERP.
In this report from procurement leaders, it looks at how can procurement functions operate with agility and speed, what would stop it, and what are leaders planning to do to overcome. One of the knocks on procurement is how long activities take, which can lead to a reluctance from the business to engage. According to the report the 3 main activities that can cause bottlenecks, include onboarding all respondents identified this,) Contracting (93%) and P2P (89%).
During onboarding, the research identified that for strategic suppliers 60% took upto 30 days, and 40% took more than 30 days.
We find that with contracting, there are somewhere between 10 and 15 associated parties that need to be involved in the process,”
William Porter – CPO Mass Mutual
The report identifies that missing data (59%), organisation silos (43%) and technology gaps (37%) are the top 3 drivers of these blockages and unsurprisingly automation (68%) is the biggest strategy for alleviating this.
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