Executive Briefings

New Research: World-Class Procurement Orgs Spend Less, Double Returns

World-class procurement organizations now have 18 percent lower operating costs than typical companies, and operate with 28 percent fewer staff, while generating more than twice the return on investment, according to new benchmark research from The Hackett Group.

Digital business transformation is one key enabler to how world-class procurement organizations achieve greater efficiency, effectiveness and higher ROI, the research says, highlighting five strategies: embrace digital transformation; reallocate resources from transactional focus to value adding; leverage analytics-based decision making; adopt stakeholder/customer-centric service design and delivery; and re-skill the procurement function.

As a percentage of total procurement spend, world-class procurement organizations spend 18 percent less on labor and 13 percent more on outsourcing than typical companies. They also see more than twice the return on investment — generating a 9.5 times payback on investment versus 4.6 times for typical companies. This number is forecasted to rise only slightly for all companies over the next five years, as cost reductions and savings continue to level off, The Hackett Group says.

Many world-class organizations are investing in the new wave of cloud-based applications and services ranging from core end-to-end procure-to-pay (P2P) systems to process-specific applications such as risk forecasting and planning, e-sourcing and spend analysis, the research finds. Cloud-based infrastructure and applications, virtual business and technology networks and business analytics are coming together with rapidly transitioning employee and consumer bases that are increasingly adept with new mobile technologies and business models. This convergence is creating new opportunities for procurement organizations to apply digital technologies to transform service delivery. Increasingly, this becomes the platform for delivering a new class of services, such as information and predictive analytics to guide decisions. Digitally-enabled processes also reduce errors and make information easier to access, freeing procurement staff for higher-value work.

Source: The Hackett Group

Digital business transformation is one key enabler to how world-class procurement organizations achieve greater efficiency, effectiveness and higher ROI, the research says, highlighting five strategies: embrace digital transformation; reallocate resources from transactional focus to value adding; leverage analytics-based decision making; adopt stakeholder/customer-centric service design and delivery; and re-skill the procurement function.

As a percentage of total procurement spend, world-class procurement organizations spend 18 percent less on labor and 13 percent more on outsourcing than typical companies. They also see more than twice the return on investment — generating a 9.5 times payback on investment versus 4.6 times for typical companies. This number is forecasted to rise only slightly for all companies over the next five years, as cost reductions and savings continue to level off, The Hackett Group says.

Many world-class organizations are investing in the new wave of cloud-based applications and services ranging from core end-to-end procure-to-pay (P2P) systems to process-specific applications such as risk forecasting and planning, e-sourcing and spend analysis, the research finds. Cloud-based infrastructure and applications, virtual business and technology networks and business analytics are coming together with rapidly transitioning employee and consumer bases that are increasingly adept with new mobile technologies and business models. This convergence is creating new opportunities for procurement organizations to apply digital technologies to transform service delivery. Increasingly, this becomes the platform for delivering a new class of services, such as information and predictive analytics to guide decisions. Digitally-enabled processes also reduce errors and make information easier to access, freeing procurement staff for higher-value work.

Source: The Hackett Group