The Right Model for Digital Procurement Transformation

Digitalizing procurement operations has been promoted as a solution to many of procurement’s perennial issues.

Experts recommend it to reduce costs, shorten cycle times and enable procurement to rebound more quickly from disruptions.

Consequently, digital procurement transformation remains a key priority for procurement leaders.

According to a recent ProcureCon survey of chief procurement officers (CPOs), 30% are planning to transform their procurement functions in the next two years.

To help those projects achieve the promised ROI, however, companies need to first understand their operating model.

What Is The ‘Right’ Procurement Operating Model?

A company’s procurement operating model is the blueprint for how its procurement organization functions – it defines responsibilities, key performance indicators, enabling technologies for internal and external team members and organizational structure, i.e., centralized or matrixed.

The ‘right’ operating model depends on the enterprise’s digital maturity. Because of this, a company cannot simply roll out a new platform and automatically reap the benefits.

Enterprises must align investments in digital procurement transformation with their current structure to reach the next stage in their procurement transformation journey most efficiently.

As business needs change, operating models and technology must shift along with them. It is critical that companies think about how their procurement operations are set up and what their future needs will be when determining investments.

Some ongoing trends they should consider in the process include:

1. Procurement Activities Will Be Increasingly Automated

In order to lower costs, procurement functions such as procure-to-pay (P2P) and contracting are more and more likely to be automated, either in the organization itself or, if those functions are outsourced, in the managed service provider. The increase in automation will require enterprises to establish new workflows for exception management.

2. Organizations Will Outsource More Tactical Procurement Functions 

Outsourcing procurement tasks will enable procurement teams to focus on more strategic tasks like supplier innovation management and data management. Doing so will help enterprises future-proof their procurement departments by giving them access to continually evolving tools and talent. It will also require them to shift the focus of their procurement teams in order to manage the ecosystem of solutions and cloud-based platforms.

3. Innovation Is Now a Strategic Procurement Capability

The pandemic-induced shutdowns propelled companies and procurement teams to create innovative solutions to adjust to a new reality. That was just the beginning. In an uncertain, rapidly changing marketplace, procurement organizations must manage innovation and work with different partners to overcome new disruptions. That may mean that tactical procurement tasks will get automated or outsourced to free up teams to focus on more high-level work. Determining what the right mix is should be an ongoing conversation between procurement leaders and technology partners.

Understand your procurement operating model to fully leverage digital transformation

The right procurement operating model for an enterprise depends on how far along it is on the digital maturity scale – from semi-digitized to full digitalization.

To get the most out of digital transformation projects, companies should start by assessing their current operating models and maturity levels to guide future steps and ensure that their procurement organizations can function as strategic partners in controlling costs and managing volatility and disruption in a more uncertain world.

To learn more about how getting the right operating model is crucial for implementing digital transformation projects, download our white paper, Why Successful Digital Procurement Transformation Needs the Right Operating Model, available on our Knowledge Bank.