Author: The Hackett Group
World-class procurement organizations now operate at 21 percent lower labor costs than peers and have 29 percent fewer staff, according to new world-class performance advantage research from The Hackett Group.
The research also found that digital transformation enables typical procurement organizations to reduce process costs by 30 percent, and world-class procurement organizations by 22 percent.
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 organizations will need to turn to digital transformation to ensure that they can continue to reduce costs and add value.
A public version of the research, “Raising the World-Class Bar in Procurement Through Digital Transformation,” is available on a complimentary basis, with registration, at this link: go.poweredbyhackett.
In part, world-class procurement organizations improve efficiency by standardizing and automating routine tasks, the research found. To improve effectiveness, world-class procurement organizations continue to significantly outperform peers in service delivery productivity. In combination, for a typical company with $10 billion in revenue, attaining world-class performance in procurement represents as much as $6 million 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 organizations, 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 organizations 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 organizational 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 organizations, reflecting greater investments in both digital technologies and process automation. Technology enables world-class procurement organizations to reduce their cost per order by more than 70 percent, 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 percent, bringing them to cost levels slightly below those of world-class procurement organizations, which have invested to a greater extent in value-creating capabilities. World-class procurement organizations can reduce process costs by 22 percent.
“There’s a tremendous opportunity for procurement organizations 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.
According to Robert Derocher, principal, Strategy and Operations Practice, The Hackett Group, “It’s important to understand that while digital technology is a powerful new platform, on its own it will not deliver the full performance improvement potential. New technologies may lead the way, but they must fit within a larger strategy, one based on a well-designed service delivery model that incudes rationalization of ERPs and other legacy technologies along with redesign of processes, information, talent and organization. Digital technologies will allow procurement to significantly accelerate headcount reductions. But procurement then has to dedicate the resulting savings to fund more technology investment, while redeploying or hiring new resources for higher-value activities.”
The Hackett Group’s research identified six digital accelerators for procurement. Digital Engagement, including self-service for both employees and managers, can improve efficiency, engagement and customer experience. Robotic Process Automation is moving from pilots to widespread adoption, enabling the automation of routine tasks in purchase-to-pay and elsewhere. Analytics-Driven Insight is already a hallmark of world-class procurement, and allows procurement to make be more agile and make predictive rather than reactive decisions while improving planning and analysis and facilitating more detailed performance measurement.
Modern Digital Architecture such as software for e-sourcing, supplier discovery and contract lifecycle management, can enable procurement to significantly speed up tasks like finding and qualifying suppliers, reduce lapsed contracts and increase the use of standard terms and conditions. Digital Workforce Enablement, including social media and messaging services, can help create a culture of collaboration, enable crowdsourcing of answers to questions and speed up work processes, particularly for the new generation of procurement professionals. Finally Cognitive Computing and artificial intelligence, which are in more nascent stages, are starting to help procurement organizations run models, make predictions and analyze large data sets.
World-class procurement organizations are those that achieve top-quartile performance in both efficiency and effectiveness across an array of weighted metrics in The Hackett Group’s comprehensive procurement benchmark. The Hackett Group’s world-class procurement research is based on an analysis of results from recent benchmarks, performance studies, and advisory and transformation engagements at hundreds of large global companies.
About The Hackett Group
The Hackett Group is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices implementation firm to global companies, offering digital transformation including robotic process automation and enterprise cloud application implementation. Services include business transformation, enterprise analytics, working capital management and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement and information technology, including its award-winning Oracle and SAP practices. More information on The Hackett Group is available at:www.thehackettgroup.com, firstname.lastname@example.org, or by calling (770) 225-3600.
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