Hackett: Procurement Renews Focus On Cost Reduction as its Top Priority

Rhea-AI Summary

Procurement executives prioritize improving spend cost reduction with the help of Gen AI to address efficiency gaps and enhance effectiveness. The Hackett Group's research highlights key concerns and priorities for 2024, including supply continuity, combating inflation, strategic advising, and transforming the procurement operating model.

Insights

Financial Analyst

The emphasis on spend cost reduction in procurement reflects a strategic shift in organizational priorities, likely influenced by economic uncertainties such as potential recessions and inflationary pressures. The decision to prioritize this over supply continuity indicates a proactive approach to cost management in anticipation of revenue growth challenges. The expected 8% increase in workload versus a 1.6% budget increase suggests that procurement departments will need to optimize operations substantially to handle the imbalance without impacting performance.

Investment in technology, particularly with a 4.6% spending increase, signals confidence in digital solutions to address efficiency gaps. For stakeholders, the critical takeaway is the potential for enhanced procurement processes to contribute to margin improvements and risk mitigation. However, the disparity between workload and budget growth could strain resources if technological investments do not yield the expected efficiency gains.

Supply Chain Management Expert

The integration of Generative AI (Gen AI) in procurement signifies a transformative approach to managing complex supply chains. Gen AI's role in spend analytics and contract lifecycle management can lead to more informed decision-making, potentially reducing costs and improving negotiation outcomes. The focus on data analytics as a key improvement initiative aligns with the increasing demand for actionable insights in procurement.

For the supply chain sector, the anticipated double-digit growth in core procurement technologies adoption is indicative of a broader digital transformation trend. However, the current low maturity of critical development areas like sustainable procurement and third-party risk management highlights the need for a balanced approach that does not solely focus on technology but also on developing competencies and processes.

Technology Adoption Specialist

The report's findings on the adoption of Gen AI within procurement functions underscore a significant shift towards embracing emerging technologies. Despite being an emerging technology, the 28% adoption rate of Gen AI is notable. It suggests that procurement organizations are recognizing the value of AI in enhancing efficiency and effectiveness. The focus on category management as a potential area for Gen AI application is particularly interesting, as it could revolutionize the way procurement strategies are developed and executed.

However, the modest growth projections for supporting and emerging technologies, compared to core technologies, may indicate a cautious approach to adopting new tech. Organizations might be focusing on proven solutions while gradually integrating newer technologies as they mature. This strategy could mitigate the risk associated with early adoption of untested technologies.

Procurement Targeting Technology, Including Gen AI, To Help Close Efficiency Gaps and Improve Effectiveness

MIAMI--(BUSINESS WIRE)-- 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.

For more information on The Hackett Group, visit: https://www.thehackettgroup.com/; email info@thehackettgroup.com; or call (770) 225-3600.

The Hackett Group, Hackett-Certified, quadrant logo, Quantum Leap and Digital World Class are the registered marks of The Hackett Group.

Cautionary Statement Regarding “Forward-Looking” Statements

This release contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Statements including without limitation, words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” seeks,” “estimates,” or other similar phrases or variations of such words or similar expressions indicating, present or future anticipated or expected occurrences or outcomes are intended to identify such forward-looking statements. Forward-looking statements are not statements of historical fact and involve known and unknown risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. Factors that may impact such forward-looking statements include without limitation, the ability of The Hackett Group to effectively market its digital transformation and other consulting services, competition from other consulting and technology companies that may have or develop in the future, similar offerings, the commercial viability of The Hackett Group and its services as well as other risk detailed in The Hackett Group’s reports filed with the United States Securities and Exchange Commission. The Hackett Group does not undertake any duty to update this release or any forward-looking statements contained herein.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240216990697/en/

Gary Baker, Global Communications Director - (917) 796-2391 or gbaker@thehackettgroup.com

Source: The Hackett Group

FAQ

What is the top priority for procurement executives according to The Hackett Group's research?

Improving spend cost reduction.

What technology are procurement leaders actively evaluating to enhance efficiency and effectiveness?

Generative AI (Gen AI).

What is the ticker symbol for The Hackett Group, Inc.?

HCKT.

What is the expected increase in workload for procurement organizations in 2024?

8%.

What are the top planned improvement initiatives for procurement organizations in 2024?

Data analytics and reporting.