Academia as well as experts have confirmed that since the early 90s the procurement function has evolved towards being recognized as a strategic entity, which is capable of delivering value beyond the traditional cost savings. However, the unfortunate fate of the procurement function being perceived as a ‘cost center’ by the leadership continues to remain at large. This perception limits the potential for new investments and innovation in the area, whichposes a hurdle for automation.
How much could be automated?
In the context of our recently introduced research titled “Strategic & Organizational Implications of Automation Technologies on the Procurement Function”, we conducted interviews with procurement experts, representing a portfolio of CxOs, managing directors, vice presidents, global procurement directors, senior managers, and digital transformation leaders. The research revealed that currently 6 % of the procurement function is fully automated and 27 % semi-automated (defined as “automated to a certain degree” in the context of the research). The participants believe that there is a 35 % potential for the procurement function tasks to be fully automated and 55 % to be semi-automated on a 5 to 10 year horizon. In sum, the area of procurement exhibits a 60 to 65 % potential for various levels of automation in the above-named timeframe. The question at hand is why the discrepancy between the current degree of automation and the expected degree of automation is currently so large and how this gap could be bridged?
Where do the hurdles lie?
While the underlying causes are diverse and extend beyond the question of automation, procurement experts shed light on several aspects that influence the digitalization of procurement and thus automation:
Leadership perception: Procurement departments today are still perceived and handled as ‘cost centers’ rather than ‘profit centers’ by the larger organization. Unless a change in the perception of the leadership can be inspired, it is unlikely that the purchasing department can attract a level of investment required to automate the function at scale. A side effect of this phenomena is that procurement leaders tend to act in a paradigm of limitations related to strategy and decision making, creating a comfortable behavior to implement rather than to discover and anticipate.
Digitization dilemma: Procurement departments often face the dilemma of choosing between the best digital solution for procurement-specific purposes and pursuing the overarching aim of the organization to harmonize processes and IT. Selecting a procurement-only approach can come along with limitations which need to be considered by the organization. On the other hand, digital transformation projects with limited consideration of procurement specifics, caused by a top-down approach, are destined to fail as the potential of procurement in the digital era is not adequately assessed and understood.
Lack of incentives: There are no incentives for the procurement department to experiment and potentially ‘fail’. An accepted reality in other fields today, failure is a necessary barrier to be breached to succeed. Since purchasing departments continue to operate with traditional ethos, the lack of incentives essentially translates to progressive purchasing departments having just one shot at getting things right.
Influencing factors: When asked to rank the factors having the most influence on procurement strategy and operations, the interviewed experts state that processes have the most influence, followed by skills of the practitioners and tools and technology while the ‘experience of the practitioner’ is ranked to have the relatively least influence. This goes to show that purchasing at its core is a human process that can be assisted with automation. However, to enable the achievement of the automation vision, technology and people experience should go hand-in-hand.
There is a clear trend towards procurement departments embracing the role of technology. Nevertheless, for now, designing and implementing the right processes dominates the list of priorities by a significant margin. To summarize the essence of the research results: Today’s procurement function is undergoing an “existential crisis” plagued with muddled inconsistent expectations, while the future (5-10 years) looks promising with technology-enabled “guided buying”. Focusing on experimentation alongside driving the business-as-usual and inspiring leadership trust are two potential measures to be taken toward overcoming the faced hurdles.
Are 5 to 10 years enough time to embrace automation and enable truly strategic procurement? We are curious to hear your thoughts!
If you’ve missed the introduction into the topic of automation in procurement published recently, check Procurement: Side Player to Strategic Hero through Automation?.