Many consulting businesses are discussing the benefits of new technologies, but few are adopting digital processes to grow their own business. The results of our recent survey “Procurement 2025: Is digital transformation driving more effective procurement?” show that the largest expected benefit from digital transformation will be faster, higher and more sustainable savings to the business.
To understand how digital transformation can yield these results, let us consider two case examples.
Case study 1:
The procurement function at a global pharmaceutical company built a highly sophisticated algorithm to calculate the optimal commercial way to produce the large number of different inner boxes needed for its goods.
The algorithm considered price indices, supply base costs, demand from the business and the most effective method of producing the product both in terms of paper format, machine runs and net layout.
Impossible to manage through Excel or offline tools, a technological solution empowered the company to contract in an innovative way and saved 19% on the total cost of inner boxes. Enabling a precise description of the requirement to its supply base – using technology to overcome the inherent complexity – allowed the company to significantly reduce the risk exposure of its suppliers and, in return, achieve higher savings.
Case study 2:
An infrastructure company broke the mold of setting up fixed-price contracts with its suppliers and moved to a gain-share target-price model.
Unlike fixed-price contracts that are characterized by change requests, target-price contracts offer an incentive to both supplier and client to find efficiencies. But they come at a cost. For the model to succeed, considerably more granularity is required to understand and manage cost detail.
Technology enabled the automation of project estimation, invoicing and commercial management with suppliers, leading to a radical new commercial model that contributed to a total cost savings target of 18% sustained over a five-year period.