How world class procurement organisations achieve their premium status

New research from The Hackett Group has found that world-class procurement organisations employ just seven…...

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New research from The Hackett Group has found that world-class procurement organisations employ just seven people for every ten who are employed by their average counterparts. As the study shows, these leading organisations not only engage less personnel but also enjoy substantially lower labour costs amounting to 21% less than their average counterparts.

The report identifies the main reasons for these efficiencies and the cost reductions that they lead to, which typically average 30%. More than anything else, digital transformation technologies are helping these organisations to standardise and automate many routine tasks. In terms of cash savings, the study notes that a business with $10bn in revenue can expect, through these digital transformation efficiencies, to achieve cost reductions amounting to $6m a year.

World-class procurement organisations appear to allocate the same number of staff to management or administration functions, planning and strategy, strategic sourcing and supply relationship management. But where they differ from average procurement organisations is in the field of operations and compliance management, which are allotted to notably fewer full-time staff.

Their success is also enhanced by their ability to retain valued staff, decreasing turnover costs and conserving practical knowledge in the process. The ratio of total savings achieved by procurement in relation to total operating costs in these leading organisations translates into remarkable ROIs: 10.7 for world-class operators, compared to just 4.7 for their average counterparts.

Commenting on the study, a Hackett Group spokesman said that it showed that technology had long played a crucial role in facilitating world-class performance in procurement by enhancing efficiency and effectiveness. But, he continued, it had now brought procurement to an inflection point, adding that “both world-class and typical procurement organizations will need to turn to digital transformation to ensure that they can continue to reduce costs and add value.”

The six “digital accelerators” identified in the study for improving procurement’s performance and complementing long-term business strategies are as follows:

  • Digital engagement
  • Robotic process automation (RPA)
  • Analytics-driven insight
  • Modern digital architecture
  • Digital workforce enablement
  • Cognitive computing

Steve Trainor

Steve has over 28 years of success as CPO, MD and Procurement BPO leader in a range of industries. Steve is COO at Odesma, responsible for Odesma’s delivery capability & infrastructure.

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