SAP collaborated with Oxford Economics to gather insights from 1,000 procurement and supply chain leaders and executives in 23 countries and 14 industries about their organisations’ approach to intelligent spend management.
This article was originally published on Inside SAP.

The Procurement Department’s role in organisations has evolved immensely over the past years– from traditionally contracting goods and services to becoming a key arm in the organisation’s profitability and productivity. The latest SAP research in collaboration with Oxford Economics entitled “The Agile Procurement Insights Research” delved into the pulse of the procurement digital transformation in consideration of today’s highly dynamic business environment and challenges, including but not limited to the COVID-19 pandemic.

John Wookey, President of SAP Intelligent Spend and Business Network, said:

“Business leaders increasingly understand the value of procurement goes beyond cost reduction.

Procurement is central to productivity and innovation, but its potential is only fully realised through digitalising end-to-end spend management processes on a single platform in the cloud. Putting organisations in a position to align spend decisions to business strategy in today’s networked economy — this is what intelligent spend management is all about.”

The research shared critical insights from procurement and supply chain leaders revealing widespread opportunities and vulnerabilities in the key aspects of procurement. Segmented into 5 reports, the study aims to understand the influence of procurement leaders, procurement technologies, risk mitigation, supplier collaboration, and contingent workforce in the modern procurement process.

Leaders Aiming for Intelligent Spend Management

In the “Leaders Aim Higher: Elevating Procurement’s Strategic Value to the Business” report, 10% of the surveyed executives were distinguished for strategically investing in digitally transforming their procurement function, bringing the organisation stronger ROI. The majority said procurement digital transformation has improved the automation of routine tasks (71%) and reduced costs (68%), which are good indicators of intelligent spend management.

4 key actions were identified by the leaders as contributing factors in their organisations’ successful digitalisation.

• Leaders focus on impact.  96% of leaders said that procurement’s role is significant to the overall profitability of the company and now functions beyond their traditional role on reducing cost and risk. 78% said that their CPOs have a vision and roadmap for transforming the procurement function to provide more strategic value to the business.
• Leaders invest in technology. The top three core procurement technologies that leaders invest in are in the areas of procure-to-pay, strategic sourcing, and supplier management. Though 77% said a considerable investment has been given to procurement technologies, it is still behind the rest of the organisation.
• Leaders embrace data analytics. Through data analytics, 70% of leaders can gain a clear view of overall spend automatically, in real-time, which helps them make informed spend decisions. However, 40% said that the lack of skills to appreciate the data limits the value and use of data.
• Leaders unlock the power of AI. 91% of procurement leaders said their organisations have made significant investments in AI or machine learning.

Automation Towards Intelligent Spend Management

In the “Procurement-Powered Performance: How Digital Transformation Is Elevating Procurement” report, SAP and Oxford Economics have seen a digital divide in terms of process automation. Though four in ten (37%) executives in the survey said most or all of their processes are automated, the same number said that most or all of their processes are still manual.

The study also highighted the critical role of leaders in driving the adoption of new procurement processes and technologies, both within the procurement function and across the organisation. While almost all (99%) of leaders are leveraging ML or AI-based analytics technologies, only less than half (45%) of the executives are using it.

Another opportunity for procurement is utilising the available data. Only 54% of executives said their procurement technologies enable them to make data-driven decisions towards intelligent spend management.

The study revealed that many companies have slow adoption of new processes and technologies within the procurement function. Only 17% of companies have significantly invested in AI or ML.  13% of leaders said they need funding for new technologies to propel digitalisation in procurement.

Mitigating Risks

In the “Getting Closer to See Further: Procurement Can Embrace Advanced Analytics to Predict and Manage Supplier Risk” report, two-thirds of executives said their procurement function is adept at mitigating risks with suppliers. Though showing progress in supplier risk management, the study revealed that only 49% of executives regularly refresh risk mitigation plans to address potential disruptions and just 32% of executives said their procurement function’s supplier risk management is highly effective.

The survey also showed that organisations are relying on too few suppliers, which increases the risk. Only half of executives can quickly find alternative sources of supply when needed and more than half (53%) said their organisation has one or more products that it purchases from only one supplier. This limits the organisations’ options when supply disruption or a sudden increase in customer orders happens.

In terms of supplier performance visibility, 48% of leaders said that gaining visibility into vendor performance is challenging. Organisations can get great benefit from advanced analytics in getting a better grasp on supplier risk.

SAP and Oxford presented seven steps to mitigate supplier risks like aiming for end-to-end supplier visibility, getting real-time insight into inventory levels, and diversifying the supply base.

Enhancing Supplier Collaboration

The “Close Collaboration That Goes Beyond Transactions: Direct Spend Leaders Engage with Essential Suppliers to Improve Performance” report revealed some significant room for improvement for organisations in terms of collaborating with their direct spend suppliers. 32% of executives still use phone, email, and spreadsheets as their primary means of collaborating with external partners on key supply chain processes. Reliance on manual processes becomes problematic when more than half of the executives stated that their organisation outsources at least a quarter of its manufacturing. The study also highlighted that most organisations rely on three or more ERP instances, which adds further to the complexity of procurement processes.

Outstanding direct spend leaders that were able to overcome these challenges shared 3 key actions that helped them succeed.

• Treat suppliers as partners. 76% of leaders provide critical suppliers visibility into future demand for their goods.
• Think like a shareholder. 96% said that procurement helps to improve product quality.
• Embrace automation. 92% of leaders use a network, a more sophisticated supplier collaboration solutions, to collaborate with suppliers.

Optimising Contingent Workforce

The “Agility Isn’t Always on the Payroll: Gain Full Visibility of Your External Workforce to Help You Drive Better Business Outcomes” report emphasised that contingent labor (42%) eats up a large workforce spend and can be further utilised.

62% said the external workforce provides extra capacity to help manage peaks in demand and 54% said they help them recover from downturns. The external workforce helps companies meet business goals including managing costs (73%), boosting organizational agility (64%), and reducing risk (64%) — all critical capabilities for business resiliency.

SAP and Oxford Economics analysed that about 14% of executives stand out in better managing spend, reduce risk and unlock more value from their external workforce through these 3 key actions:

• Gain visibility. 54% of leaders are highly informed about their contingent workers’ access to systems and confidential company information.
• Manage with rigor. Leaders experience fewer issues with their external workforce when they have superior visibility.
• Improve ROI. Leaders are 2x more likely to say that 90% of their contingent workers and service providers meet their goals and objectives.

Know more about the “Agile Procurement Insights Research” here.

Image via Inside SAP