Market Overview

Hackett: World-Class Procurement Organizations See 21 Percent Lower Labor Costs, While Digital Transformation Continues to Raise the Bar on Procurement Performance


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
, Inc. (NASDAQ:HCKT). 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:

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

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. A public version of this research,
is available on a complimentary basis, with registration, at this link:

About The Hackett Group

Hackett Group
 (NASDAQ:HCKT) is an intellectual property-based
strategic consultancy and leading enterprise benchmarking and best
practices digital transformation 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.

The Hackett Group has completed more than 15,000 benchmarking studies
with major corporations and government agencies, including 97% of the
Dow Jones Industrials, 89% of the Fortune 100, 87% of the DAX 30 and 59%
of the FTSE 100. These studies drive its Best Practice Intelligence
Center which includes the firm's benchmarking metrics, best
practices repository and best practice configuration guides and process
flows, which enable

The Hackett Group's clients and partners to achieve world-class

More information on The Hackett Group is available at:,
or by calling (770) 225-3600.

View Comments and Join the Discussion!