What CPOs Need to Know About Predictive Procurement Orchestration
The vast majority of Chief Procurement Officers (CPOs) believe in the power of procurement data to make better-informed decisions across their organization. In fact, they believe the potential of procurement data is so big, it could completely revolutionize the way they do their jobs.
Yet there’s a disconnect between this belief and the actual behavior of most CPOs. Simply put, organizations still aren’t harnessing the power of technology to its full effect — and they’re missing out on countless opportunities to optimize spending, decision-making, sourcing, and results.
In this article, we’ll take a look at the current problems CPOs face, then analyze the procurement opportunities lost and how the digital era of procurement can help organizations regain these opportunities to fuel growth with predictive procurement orchestration.
Common Problems Faced by CPOs Today
More than twenty years ago, procurement underwent a drastic transformation that elevated the function from a tactical operation to a strategic hub. But these days, many CPOs feel like they’re at a standstill, unable to fully realize their potential.
A recent Ardent Partners survey found that 90% of CPOs say they could and should be doing more with the resources they have. Yet challenges like the COVID-19 pandemic, global supply chain disruptions, and the economic downturn have all limited and slowed down the next phase in procurement transformation.
As an increasing number of companies prioritize cost containment, the pressure is on for procurement. And for many businesses, procurement’s performance could be the difference between profit and loss.
4 Lost Opportunities for Procurement
Many of today’s procurement departments struggle with precision and efficiency, leading them to fall short of their goals and potential. Because of this, many departments are experiencing diminishing returns and lost opportunities.
Let’s take a look at four of the most common challenges facing procurement departments.
1. Unmanaged Spend
The average enterprise hands off about two-thirds of its spend budget to procurement. Yet research shows that for every new dollar placed under the management of procurement, the average business gains 6-12% in ROI during just one contract cycle.
Not only is this the most direct way to expand procurement’s impact, but it’s also the most effective way to optimize an organization’s budget.
Clearly, all organizations could benefit from handing over more of their total spend to procurement — yet the average rate hasn’t changed in more than a decade. Even more discouraging, only 9% of all CPOs focused on increasing the amount of managed spend during the pandemic, and only 5% have identified this as a top reporting metric.
2. Reduced Sourcing
A turbulent market, supply chain disruptions, and rapid inflation have all created challenging times for procurement professionals. Though these individuals are used to driving innovation and reducing costs simultaneously, CPOs need even more effective tools to ease the burden of inflation.
Ardent Parner’s research proves that competitive sourcing directly increases savings rates. And yet, the average procurement team actually reduced competitive sourcing over the last year, even as the need to increase savings went up.
3. The Technology Gap
In the modern age, most CPOs rely on technology as a key part of their overall operation. Successful users of supply management solutions have shown over and over that technology can help scale a procurement operation and maximize its impact and performance.
Despite all this, it’s very rare to find a fully automated procurement department. eProcurement and eSourcing adoption rates are just barely approaching 50%, limiting procurement teams’ ability to optimize operations and performance over the long term.
4. The Proficiency Gap
It’s important to note that technology deployment and technology adoption are two very different things. Though many procurement departments possess automation tools, they lack the ability to use these tools effectively.
Surprisingly, only 4% of CPOs rate themselves as “sophisticated users” of procurement technology, and just 11% said that they’ve successfully adopted advanced technology within their department.
What’s Ahead: The Digital Age of Procurement
Today’s best-in-class procurement departments all have high adoption and a strong usage rate of automation tools. Yet far too many procurement teams are failing to optimize this digital technology era. The reasons for this conundrum are multi-faceted, and may be caused by technology providers, procurement leaders, teams, IT departments, and users alike.
But no matter who’s to blame, it’s clear that procurement teams and leaders must increase accountability if they want to successfully reach their digital transformation goals.
Reclaiming Opportunities with PPO
The problems with today’s supply chain technologies are abundant. But fortunately, the solutions are fairly straightforward. Predictive Procurement Orchestration (PPO) helps departments use smart systems to simplify, eliminate, and fully automate tasks, all while using data and AI to set effective strategies and continually improve results.
By combining workflows with transactions, these systems can anticipate and predict the steps needed to generate optimized management of spend.
Here are four ways PPO can help enterprises transform procurement and regain lost opportunities:
1. Expand Reach and Influence on Spend
History has shown again and again that big data analytics have the power to predict an action and generate a smarter response or result. Similarly, PPO can drive efficiency across procurement by identifying patterns that reduce the amount of time spent on tactical activities. In the end, procurement teams have the chance to increase the percentage of spend under their management, without increasing staffing and other resources.
2. Drive Smarter Decisions
As procurement organizations become increasingly automated, they have a greater opportunity to increase visibility and make smarter, data-driven decisions. PPO solutions can deliver information efficiently using machine learning and artificial intelligence, producing deep insights and better outcomes. Top-performing organizations are already doing this, linking procurement data directly to decision making for quick and tangible ROI.
3. Smarter Sourcing
Many procurement teams still view eSourcing solutions as risky — yet they’ve been shown to deliver superior results in comparison to all other negotiation methods. PPO solutions eliminate this conundrum by analyzing supplier pricing and historical purchasing trends. The reason is a data-driven negotiation method that influences tail spend and minimizes maverick spend in a period of high inflation.
4. Accelerated Activity
PPO solutions possess AI capabilities that can help procurement departments become more agile, strategic hubs of efficiency. By leveraging algorithms and tools, AI enables procurement processes to continually improve — all while teams focus on more strategic work. Ultimately, PPO allows staff to drive strong results at a faster pace, with no tactical intervention needed.
Ushering in the Next Phase of Procurement with PPO
In volatile times, only the most agile, data-driven procurement organizations will survive. PPO helps procurement teams overcome modern challenges by using AI and machine learning to build upon existing systems and processes. Organizations that recognize and capitalize on this opportunity will gain a significant competitive advantage, opening up a new chapter of what’s possible for procurement.
Ready to learn more about how PPO can transform the procurement industry? Check out our white paper, “Predictive Procurement Orchestration: Four Ways It Can Transform the Industry.”