Procurement costs

World-class procurement organizations reduced their labor, outsourcing and technology costs by 1.6%; the peer group, by 3.0%. Over the years, cost-reduction efforts have been successful, but these have come at a price.

Today, these organizations are running extremely lean – perhaps too lean. World-class procurement's challenges are compounded by their diminishing ability to reduce spend and avoid purchase costs, down sharply in 2014. This represents a 17.3% decline, returning annual savings levels to only slightly above pre-recession benchmarks. World-class ROI (i.e., the ratio of total purchase cost savings to the total cost of procurement) is still strong at 9X payback on investment in procurement processes, but this number is losing ground as cost reductions level out and savings decrease.

Unrivaled insights that drive process improvement and sourcing and procurement transformation

Our sourcing and procurement benchmarking services provide access to the unparalleled benchmarking information and resources that are part of The Hackett Group's proprietary Best Practice Intelligence Center™ – a repository of processes, benchmark data and business best practices developed from more than 11,000 projects conducted at the world's leading companies. Our procurement benchmark studies provide a fast and objective way for executives to:

  • Understand current capabilities
  • Assess performance relative tbusiness value and strategy
  • Identify and prioritize improvement opportunities that offer the greatest potential return
  • Highlight and address areas of risk
  • Plan, manage and accelerate your journey tworld-class performance

This performance insight covers more than 1,500 procurement metrics.

What makes the difference?

Two characteristics distinguish The Hackett Group's procurement benchmark studies: the world's largest repository of empirically proven best practices, and our proven approach for assessing performance and value. Our business benchmarking services focus on three drivers of world-class procurement performance:

  • Factors that drive demand for procurement function services, such as complexity (geographies, legal entities, regulatory environment) and volatility (rate of change, M&A activity)
  • Structural factors such as business practices, strategies, service delivery model, staffing levels, skill sets, and technologies used
  • Execution/realization of value, including performance as measured by costs, productivity, resource allocation and value

Then, we use proprietary best practices benchmarking methodology to quantify your gap to world class - comparing your sourcing and procurement function's ability to execute efficiently (cost and productivity) and effectively (quality and value). We examine comparable organizations so you can see how the best do it and define business process reengineering steps relevant to your own sourcing and procurement function.

Our analysts use sourcing and procurements metrics such as these to calculate world-class performance
Efficiency Effectiveness
  • Functional and process costs and staffing levels
  • Overall cost as a percent of spend
  • Transaction costs and productivities
  • Cycle time
  • Cost savings
  • Return on investment
  • Access tinformation
  • Percent of staff dedicated tdecision-support activities
  • Percent of purchase order transactions requiring re-work
  • Leverage of technology
  • Supplier leverage

Impact beyond sourcing and procurement function borders

Business processes and systems inextricably link your sourcing and procurement function with other enterprise functions. Continuous process improvement in one area may have a ripple effect on others; for example, improved IT controls may result in more reliable data for decision-making in sourcing and procurement.

Our business benchmarking approach examines efficiency and effectiveness not just within the sourcing and procurement function, but also with a view toward the impact across your enterprise.

The Hackett Performance Exchange™ automatically leverages data from SAP® or Oracle® systems to calculate a cost improvement opportunity, compare performance across the enterprise, and produce timely end-to-end process insights – overnight.

Key deliverables:

  • An executive summary that highlights key findings and recommendations
  • A detailed comparison of finance performance tthe statistical median and world-class organizations, across the processes measured
  • Analysis of the root causes of complexity and assessment of the value of finance services delivered, drawing from benchmark comparisons and stakeholder feedback
  • Identification of best practices required tachieve targeted efficiencies and identification of areas at risk due under- and over-investment
  • Targeted recommendations presented in boardroom-level, results-oriented business terms

Learn More

Depending on objectives, approach and business complexity, a benchmark can typically be conducted in about seven to 10 weeks. To learn about The Hackett Group's sourcing and process benchmarking services, contact us.