'World-class' procurement organisations operating at 21% lower labour costs
World-class procurement organisations now operate at 21% lower labour costs than peers and have 29% fewer staff, according to new world-class performance advantage research from The Hackett Group.
The research also found that digital transformation enables typical procurement organisations to reduce process costs by 30%, and world-class procurement organizations by 22%.
Technology has always played an important role in enabling world-class performance through improved efficiency and effectiveness.
But procurement is now at an inflection point, the research found, and both world-class and typical procurement organisations will need to turn to digital transformation to ensure that they can continue to reduce costs and add value.
In part, world-class procurement organisations improve efficiency by standardising and automating routine tasks, the research found.
To improve effectiveness, world-class procurement organisations continue to significantly outperform peers in service delivery productivity. In combination, for a typical company with $10bn in revenue, attaining world-class performance in procurement represents as much as $6mn in potential savings annually.
World-class procurement groups also have a significantly higher ROI than peers, generating a 10.7X payback on investment in procurement, more than twice that of typical procurement organisations, the research found.
But cost reductions and savings are forecasted to level out in coming years, making it necessary to find new ways to continue to unearth value.
Across a wide range of metrics, world-class procurement organisations also demonstrate higher levels of effectiveness than peers. They have 2-3X fewer transaction discrepancies, a clear sign of higher-quality process execution.
They also focus on improving their ability to influence business performance. World-class procurement organizations are more than twice as likely to have retention plans in place for procurement personnel and see a third lower staff turnover.
This enables them to better retain organisational knowledge and demonstrates their improved ability to match new hires with skills needs and deliver an employee experience that matches expectations.
Technology costs per procurement staff member are generally higher in world-class organisations, reflecting greater investments in both digital technologies and process automation.
Technology enables world-class procurement organisations to reduce their cost per order by more than 70%, and also allows procurement staff to dedicate more time to talent development and other activities that boost business performance.
The Hackett Group’s research found that digital transformation can enable typical procurement organizations to reduce their process costs by 30%, bringing them to cost levels slightly below those of world-class procurement organisations, which have invested to a greater extent in value-creating capabilities. World-class procurement organisations can reduce process costs by 22%.
“There’s a tremendous opportunity for procurement organisations to apply digital technologies – including cloud-based infrastructure and applications, business analytics, and more – to transform their service delivery model. It can make them faster, cheaper, smarter, much more responsive to their customers and quite simply a more valuable partner to the business,” said Christopher S. Sawchuk, principal & Global Procurement Advisory Practice leader, The Hackett Group.
EU and US agree end to Airbus-Boeing supply chain tariffs
The EU and US have agreed to resolve a 17-year dispute over aircraft subsidies, suspending tariffs on billions of dollars' worth of goods that have plagued procurement leaders on both sides of the Atlantic.
Under an agreement reached by European Commission Executive Vice-President Valdis Dombrovskis and US Trade Representative Katherine Tai on Tuesday, the tariffs will be halted for a period of at least five years.
It will bring an end to punitive and disruptive levies on supply chains that have little to do with the argument, which became embroiled in the trade battle. Businesses on both sides of the dispute have been hit with more than $3.3bn in duties since they were first imposed by the US in October 2019, according the EC.
The US imposed charges on goods upto $7.5bn in response to a World Trade Organisation ruling that judged the EU’s support of Airbus, its biggest aircraft manufacturer, unlawful. A year later in November 2020, the EU hit back. The WTO found the US had violated trade rules in its favourable treatment of Boeing, and was hit with EU duties worth $4bn.
In all the tariffs affected $11.5bn worth of goods, including French cheese, Scotch whisky, aircraft and machinery in Europe, and sugarcane products, handbags and tobacco in America. Procurement leaders on both sides of the fence were forced to wrestle with tariffs of 15% on aircraft and components, and 25% on non-aircraft related products.
Boeing-Airbus dispute by the numbers
- The dispute began in 2004
- Tariffs suspended for 5 years
- $11.5bn worth of goods affected by tariffs
- $3.3bn in duties paid by businesses to date
- 15% levy on aircraft and 25% on non-aircraft goods suspended
Both sides welcome end to tariffs
European Commission President Ursula von der Leyen branded the truce a “major step” in ending what is the longest running dispute in WTO history. It began in 2004.
“I am happy to see that after intensive work between the European Commission and the US administration, our transatlantic partnership is on its way to reaching cruising speed. This shows the new spirit of cooperation between the EU and the US and that we can solve the other issues to our mutual benefit,” she added.
Both aircraft manufacturers have welcomed the news. Airbus said in a statement that it will hopefully bring to an end the “lose-lose tariffs” that are affecting industries already facing “many challenges”. Boeing added that it will “fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected”.
The US aerospace firm added: "The understanding reached today commits the EU to addressing launch aid, and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action."
This week’s decision expands upon a short-term tariff truce announced in March this year. The EC says it will work closely with the US to try and further resolve the dispute, establishing a Working Group on Large Civil Aircraft led by each side’s trade minister.
Airbus last month signalled to suppliers that post-pandemic recovery was on the horizon, telling them to scale up to meet a return to pre-COVID manufacturing levels. “The aviation sector is beginning to recover from the COVID-19 crisis,” said Airbus chief executive Guillaume Faury, adding that suppliers should prepare for a period of intensive production “when market conditions call for it.”