Procurement Targeting Technology, Including Gen AI, To Help Close Efficiency Gaps and Improve Effectiveness
Improving spend cost reduction has taken over the top priority spot for procurement executives for the coming year, as companies face concerns over their ability to continue to grow revenue, high interest rates, fears of recession, and the potential for labor and skill shortages, according to new Procurement Key Issues research from The Hackett Group, Inc. (NASDAQ: HCKT). Procurement leaders are also actively evaluating how generative AI (Gen AI) can help them improve both efficiency and effectiveness in a range of functional areas.
The Hackett Group® found that ensuring supply continuity – last year’s greatest concern – fell to second place in this year’s ranking, followed by combating inflationary price increases in third place. Acting as a strategic advisor (priority No. 4) returned to the top five priorities for 2024, highlighting procurement executives’ concern over increased expectations for their function. Transforming the procurement operating model (priority No. 5) is new to the top priorities this year as executives consider the impact of evolving technology, including generative artificial intelligence (Gen AI).
Procurement is once again anticipating an efficiency gap in 2024 as workload is expected to increase by 8% in 2024, while budgets are expected to rise by only 1.6%. Procurement organizations are hoping to use technology, including Gen AI, to make up some of the gap, and technology spend is one area likely to be spared potential cuts, with an expected 4.6% spending increase.
Data analytics and reporting topped the list of planned improvement initiatives for 2024, followed by talent management. Data analytics was one of several improvement initiatives deemed to be of high importance but low maturity, making it a critical development area. Other critical development areas include category management, sustainable procurement, third-party risk management and supplier relationship management.
Procurement organizations have a high level of adoption for end-to-end core procurement technologies, with projected double-digit growth in 2024 to support continued digital transformation efforts. Current adoption of supporting and emerging technologies is not as extensive as for core technologies, and growth projections are more modest, ranging from 2% to 13%.
Although Gen AI remains an emerging technology, 28% of procurement organizations have already added it to their portfolio of procurement technology solutions. The most promising opportunities are spend analytics and contract life-cycle management, both areas where easy access to accurate data can greatly enhance effectiveness of procurement personnel. Category management is another area for Gen AI adoption highlighted by 50% of respondents who can envision the power of being able to pull together category-specific expertise, historical spend data, planned expenditure, and supply market data to automatically create category strategies and thus freeing up time to allow procurement personnel to focus on collaborating more closely with business stakeholders.
A complimentary version of The Hackett Group’s 2024 Procurement Key Issues research, “The CPO Agenda,” is available, with registration, at https://go.poweredbyhackett.com/886.
“Spend cost reduction is perennially a high priority for procurement. But economic concerns have propelled it back into the top spot this year. In addition to the array of global economic challenges, companies are concerned about their ability to grow revenue, so cost focus and margin expansion are key. Many companies are even hoping to claw back some of the inflationary cost increases to support margin growth,” said The Hackett Group’s Principal and Global Procurement Advisory Practice Leader Chris Sawchuk. “Procurement teams are projecting higher levels of savings in 2024 for both purchase cost reduction and cost avoidance. But most procurement organizations have a significant opportunity to drive improved value on lean procurement cost structures. The Hackett Group’s benchmark analysis quantifies the opportunity – Digital World Class® procurement organizations deliver nearly double the spend cost reduction savings of their peers, while expending 21% less on procurement overall, translating to a 2.5X higher return on investment.”
According to The Hackett Group’s Senior Research Director of Procurement and Purchase-to-Pay Advisory Amy Hillcox, “Supply chain disruption risk remains top of mind for many procurement teams due to ongoing geopolitical conflicts. Managing supply disruption is critical to protecting revenue and profitability, and several capabilities key to supply continuity – including supplier relationship management and third-party risk management – were identified as critical development areas in our research. Procurement must continue to enhance its capabilities in these areas, engaging in upfront risk monitoring across a broader set of risk domains, and continuing to monitor and mitigate risks using real-time data and insights through the full supplier life cycle. Teams also must stay abreast of the developments in digital tools – such as AI and generative AI – to maximize visibility throughout the supply chain, while leveraging market intelligence data from multiple internal and external sources.”
The Hackett Group’s 2024 Key Issues research is based on results gathered from more than 375 executives in finance, procurement, supply chain, human resources, information technology, and global business services at a global set of midsized and large enterprises.
About The Hackett Group
The Hackett Group, Inc. (NASDAQ: HCKT) is a leading benchmarking, research advisory and strategic consultancy firm that enables organizations to achieve Digital World Class® performance.
Drawing upon our unparalleled intellectual property from more than 26,000 benchmark studies and our Hackett-Certified® best practices repository from the world’s leading businesses – including 97% of the Dow Jones Industrials, 89% of the Fortune 100, 70% of the DAX 40 and 55% of the FTSE 100 – captured through our leading benchmarking platform Quantum Leap® and our Digital Transformation Platform, we accelerate digital transformations, including enterprise cloud implementations.
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