Long-Term Investment in Procurement Technology Lays the Foundation for Gen AI Adoption.
Latest Report Shows Digital World Class® Procurement Organizations Will Experience 54% Productivity Boost and 47% Cost Reduction
According to new research from The Hackett Group, Inc. (NASDAQ: HCKT), Digital World Class® procurement organizations can expect staff productivity to increase by 54% and process costs to be cut by 47% with the adoption of generative artificial intelligence (Gen AI).
Procurement operating costs for typical companies have continued to escalate in the face of ongoing supply disruptions, inflation and new compliance requirements. However, due to their consistent focus on process optimization and strategic technology investment over the last several years, top-performing procurement organizations are better prepared to harness Gen AI than their peers.
The research shows that despite the high operating costs prevalent in the industry, Digital World Class® procurement organizations excel at cost optimization, operating at a 21% lower cost compared to their peers.
Furthermore, Digital World Class® procurement organizations deliver superior business outcomes, with procurement return on investment being 2.5 times greater than that of their peers – up from 2.2 times greater in 2019. They also manage 21% more spend, achieve two times higher spend cost reduction savings and a 59% reduction in maverick buying.
They have 32% fewer staff across all processes, with a notable 56% fewer full-time equivalents (FTEs) placed in operations and compliance roles. Yet, these organizations are 1.7 times more likely to be viewed as a valued business partner. In contrast, in 2019, FTE reductions were primarily focused on achieving early-stage efficiencies. This progression shows continuous streamlining and a more strategic allocation of resources over the years.
In terms of operational excellence, Digital World Class® procurement organizations have 23% shorter sourcing cycle times and 76% lower process costs per order. Their transactional efficiency is unmatched, with 1.3 times more requisitions and change orders processed electronically, and 5.1 times more purchase orders processed electronically. As a result, they can achieve quicker turnaround times and reduced manual intervention, ensuring a more seamless and automated procurement workflow.
Digital World Class® procurement organizations not only focus on technology but also on enabling strategic activities. They invest 15% of their operating budget in technology, which is 32% higher than typical organizations, reflecting a significant increase compared to five years ago when the early stages of digital tool deployment, such as robotic process automation and advanced analytics, were being emphasized. In 2019, the percentage of procurement budget invested in technology was 11% higher for Digital World Class® procurement organizations than their peers.
These organizations also manage their supplier base more effectively than ever before, with 3.7 times fewer suppliers per $1 billion in spend, significantly reducing complexity and enhancing supply base control.
Amy Hillcox, senior research director at The Hackett Group, said:
Generative AI is revolutionizing the procurement landscape by enabling unprecedented levels of automation and insight.
”Digital World Class® procurement organizations have laid a robust technological foundation, highlighting consistent improvements in cost-efficiency, staff allocation and technological investment. Our research indicates that embracing Gen AI will further enhance these aspects, leading to faster and more informed decision-making and enabling procurement teams to deliver even greater strategic value and innovation.”
Principal Chris Sawchuk added, “Digital World Class® procurement organizations are not merely tech-savvy – they represent holistic excellence by integrating superior data management, strategic partnerships and top-tier talent optimization. This comprehensive approach has allowed them to realize rapid and profound improvements across all metrics from 2019 to 2024. Their enhanced focus on technology and data analytics leads to sharper insights and faster decision-making, providing a substantial competitive edge in a fast-evolving market.”
The Hackett Group defines Digital World Class® procurement organizations as those that achieve top-decile performance in business value and operational excellence. The 2024 research includes benchmarks, performance studies and advisory insights from global companies engaged in procurement transformation. A public version of the report, “Insights From Top Performers: How to Level Up With Gen AI,” is available for free, with registration, at: https://go.poweredbyhackett.com/dwcproc2406nr.
Long-Term Investment in Procurement Technology Lays the Foundation for Gen AI Adoption, source.
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