World-class procurement organizations spend 30 percent less on procurement operations than their peers and operate with nearly half the staff, according to 2004 research into world-class performance from The Hackett Group, a business advisory firm and an Answerthink company. At the same time, these world-class companies achieve 60 percent higher return on investment (ROI) than typical companies and rely on less than half as many suppliers.
Hackett's 2004 research also highlighted several key areas where companies can improve their procurement processes. At most world-class companies, procurement is formally involved in cross-business planning and budgeting. This is virtually never the case at typical companies. World-class companies are also about twice as likely as their peers to engage in significant supplier rationalization annually, and they have greater control over indirect spending. Finally, an opportunity exists for both world-class companies and their peers to improve leverage of tools for sophisticated spending analysis.
Hackett's research identified several key areas where typical companies, and in some cases world-class companies, can improve, such as:
- Involvement of procurement during both cross-business and cross-functional planning and budgeting processes is a clear area where world-class companies and their peers diverge. Only three percent of all companies said that procurement was formally involved in the planning and budgeting process, while a full 60 percent of world-class companies are actively involved.
- Supplier consolidation is another key strategy for world-class organizations. While typical companies operate with 7,805 suppliers per billion dollars of spending, world-class organizations rely on 55 percent fewer.
- Control and influence over indirect spending behavior is also critical. According to Hackett's research, world-class companies have control over 48 percent more of their company's indirect spending than their peers.
The Hackett Group's 2004 research into world-class performance is compiled in its Book of Numbers series, which provides senior executives fact-based performance metrics and insights based on Hackett's extensive database of best practices and process metrics in procurement, finance, HR, IT and other areas. The Book of Numbers series is offered as part of Hackett's Procurement Executive Advisory Program, one of nearly a dozen Business Advisory Services -- premium-value, membership-based services providing executives with on-demand access to performance metrics and best practices advice.
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