Hackett

Procurement Renews Focus On Cost Reduction as its Top Priority

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.