Procurement modernization is probably the most important thing your organization can do right now if you work at a mid to large sized public agency. Otherwise you’re leaving money on the table that could improve the quality of services that citizen receive.
Why? A study by Accenture shows that high-performing sourcing organizations save $82 for every $8 in costs, which is a 10x return on investment.
That’s an impressive fact and it’s worth unpacking. For example, it begs the question of what differentiates those high performers and allows them to get 10x return on investment. Accenture’s observation is that high-performance procurement teams are the ones that embrace modern technologies.
Opportunity Cost of Inaction
Being unwilling to embrace new technologies has a price too. It resigns procurement teams to low performance, putting a handicap on their potential and limiting their productivity. Some of the signs of this include:
- Overburdened and overworked team members
- Long, slow timelines
- Lower levels of cooperation with the business
- Fixation on process over strategic value
The opportunity cost of inaction is also quantifiable. Moving from a low to high performer will result in an increase in return on investment of 6x, a financial benefit that’s lost by not modernizing procurement (source: Accenture Strategy, Procurement’s Next Frontier).
Procurement modernization touches everyone in the organization. Obviously it affects the procurement team, who gains productivity through more powerful tools and more insightful analytics engines. It touches a variety of other internal stakeholders: the front-office departments and other back office functions, like legal, finance, and risk. Ultimately, it also impacts external stakeholders like vendors and customers (citizens).
Depth of Impact
Procurement modernization allows internal stakeholders to focus on more strategically important (and interesting) tasks, achieve more with less, and enjoy their work more. For vendors, it’s easier to navigate procurement processes and less cumbersome to engage with the organization. For customers (citizens), the result is delivering higher levels of service in a more efficient way.
Research makes it possible to quantify the value of a high-performance sourcing team — there’s a 10x return on investment. The opportunity cost of inaction is high, in large part because procurement modernization touches virtually everyone inside of the organization and has such a large impact on them. Due to this high potential financial and non-financial impact, procurement modernization should be a top priority for public agencies.