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Three Reasons for Procurement's Slump

By Matt Holzapfel, procurement/sourcing product lead, who previously held positions in Strategy at Sears Holdings and Strategic Sourcing at Dell

Best-in-class procurement performers are quietly becoming a competitive advantage for their organizations by using new technology to capture hard to find improvement opportunities. In this series of blog posts, we’ll examine the value procurement organizations are gaining by accelerating their technology agenda.  

comprehensive study done by AT Kearney in late 2014 showed that 75% of procurement organizations have not improved their productivity since 2011. This seems hard to believe given procurement’s constant push for efficiency gains, declining commodity prices, and the rise of technology designed to make businesses more efficient. A closer look inside the procurement function reveals a few reasons procurement has struggled to improve.

1. Procurement organizations are bogged down by tactical activities

Only 40% of procurement organizations have automated spend analysis tools. Organizations without this capability must invest significant time preparing spend data, hindering their ability to identify and capture savings opportunities. Urgent issues with suppliers can happen at any time, making it even more challenging for procurement to set aside time to mine the data needed to make strategic decisions. Further, even companies with automated spend analysis tools might not be reaping the full benefits of these tools if data quality or availability is an issue, something that 67% of procurement organizationsconsider a problem.

2. Spend is becoming more difficult to analyze 

Organizations with multiple ERPs, a global footprint, and significant levels of outsourcing have the challenging problem of centralizing and standardizing spend information from across disparate sources to identify savings opportunities. Record levels of M&A activity are exacerbating this problem, as organizations must sift through spend data sitting in diverse systems in varying formats to identify overlaps in spend and the resulting savings opportunities. 

3. Innovation in procurement technology has been relatively limited

Compared to other areas of the enterprise, procurement has seen a limited number of new technologies take hold. There are some pockets of innovation, such as procure-to-pay players like Coupa and Procurify, but innovation has not been nearly as widespread as it has in sales and marketing or human resources. CPOs are dissatisfied with current user-experiences, and the talent challenge in procurement is still top-of-mind for many CPOs, creating a need for technology with better usability that can improve the performance of procurement professionals. As more leaders envision a digitally-minded organization, the market will respond by delivering the technology needed to solve procurement’s challenges. 

The good news is that the top performing procurement organizations have been able to overcome these challenges and improve their productivity.  

Are these problems worth solving within your organization? We aim to answer that question in future posts discussing the value of solving these problems and how to do it.

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