Digital transformation: the secret weapon to agility.
As I reflect on the turbulence from this infamous last year, a predictable pattern has emerged: organizations that were able to digitally transform their business prior to the pandemic were able to mitigate most of the risks the pandemic presented to business continuity. In obvious contrast, organizations that hadn’t been able to do so fell victim to those risk factors. As we saw with numerous industries, businesses unable to shift their focus quickly during lockdown or acute supply chain disruption, suffered great impact in the immediate term.
As organizations reacted to the pandemic, critical questions emerged about immediate risk factors and supply chain health. Procurement’s role in strategic decision-making was thrust into the spotlight.
But how much difference does digital maturity for spend management make in furthering an organization’s agility and sharpening its decision-making capabilities?
Unsurprisingly, digital transformation plays a significant role in future-proofing your organization, according to forthcoming research from SAP.
SAP, in collaboration with Oxford Economics, conducted global research in late 2020 with the goal of understanding procurement’s influence on organizations, the current state of supplier collaboration, and the impact of technology and process digitization in the procurement function. We essentially wanted to find out if the companies that embrace technology and value close supplier collaboration are in fact able to respond more effectively to disruption.
SAP surveyed 1,000 procurement and supply chain executives responsible for direct and indirect spend and services including the management of contingent labor and services providers. The executives who participated represented 14 industries in 23 countries – one-third of them occupying the C-suite.
What we found was the more investment there was, the better the agility.
Organizations have made significant progress on their journey toward the digital transformation of procurement, and they report reaping many benefits from doing so. According to the procurement industry leaders, due to their extensive investments in digitization, they have reaped the benefits of being further ahead on the path to transformation, even surpassing their peers in adopting digital analytics capabilities as the basis for decision-making. These key investments include robotic process automation, predictive analytics, artificial intelligence, and cognitive assistants. The successful adoption of these technologies has resulted in greater operational efficiencies, fuller compliance and broader collaboration with suppliers.
But even for these early investors, the road to ready proves to be only as strong as their weakest supplier…
Industry leaders are only slightly ahead of their peers when it comes to supplier risk management, and there’s a simple reason. For many organizations, the coronavirus pandemic brought vulnerability to supplier risk to the forefront, revealing a lack of visibility into inventory levels, production continuity, and forecasting and logistics insights in both their own facilities and those of suppliers. Organizations are only as strong as their weakest suppliers. More and more, firms are realizing that investments in digitization are just as crucial for the supplier side as they are for the buyer side. Luckily, cloud-based supplier collaboration solutions and sizable cloud-based networks mitigate this risk by enabling buyers and suppliers to partner together to anticipate bottlenecks, stockouts or other disruptions — and suggest alternative courses of action.
Immediate access to a robust and mature business network further solidifies an organization’s ability to react quickly when new sources of supply for critical goods and services are needed.
Another sizable spend category that presents similarly vast opportunities to unlock value is the external workforce. Consisting of contingent labor and services providers such as consulting firms, outsourcers, systems integrators and call-center operations, external labor accounts for 42 percent of workforce spend, with payroll employees comprising the remainder. Highly skilled external workers lend businesses the flexibility they need to achieve resilience in times of disruption, but they are often under-managed. By actively managing the external workforce with the transparency and real-time insights made possible by cloud-based applications, businesses can expand value, strengthen compliance and attenuate risk.
When looking at spend, treat your suppliers like partners…
Direct spend presents a similar argument. According to our research, only 57% of executives say their organizations enjoy collaborative, partner-like relationships with top suppliers — and an astonishing one-third of them still use clunky old spreadsheets as their primary means of working with them. Organizations’ vulnerability to risk becomes especially acute in light of continued heavy reliance on outsourced manufacturing. Digital transformation can go a long way toward narrowing the gap between organizations and the suppliers they rely on for direct materials. Those organizations that use digital platforms to engage in commerce and collaboration with trading partners report achieving greatest success when they treat suppliers as partners, adopt automation to manage their direct spend and source-to-pay processes, and view procurement as a strategic driver of growth and as a stakeholder in creating mutual value.
It is the leaders who prioritize and embrace the digital transformation of procurement who outperform those who have not. Their stronger use of data, analytics and automation help them to make better-informed decisions and respond faster to emerging risks. However, it is crucial to remember that even these leaders have much to gain from applying cloud-based tools more broadly and deeply throughout their procurement processes. They, like others, struggle with incomplete data, manual processes, and opaque or inconsistent measures of vendor performance.
As business leaders plan for 2021, it is imperative that the digital transformation of procurement is prioritized and that the increasingly prominent role of spend management is recognized and enabled in their organizations’ road to readiness. It will not only help companies rebuild post-pandemic; it will help them reemerge stronger on the other side.
Learn more about the available insights and detailed reports derived from the SAP + Oxford Economics research via the links below.
- Agile Procurement Insights Report on Digital Transformation: Procurement Powered Performance
- Agile Procurement Insights Report on Supplier Risk: Getting Closer to See Further
- Agile Procurement Insights Report on Direct Spend: Close Collaboration That Goes Beyond Transactions
- Agile Procurement Insights Report on External Workforce: Agility Isn’t Always on The Payroll
- Agile Procurement Insights Report on Leaders: Leaders Aim Higher