'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.

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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.