Top International firms prove that procurement is a good investment

17 November 2005
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17 November 2005 | Rebecca Ellinor

Firms that view costs incurred in running procurement operations as an investment achieve greater savings, research has revealed.

A Hackett Group study found leading international organisations who take this approach generate a 133 per cent greater return on investment than typical companies. This equals an extra $3.6 million (£2.06 million) savings for every $1 million (£573,706) spent on operating costs.

Chris Sawchuck, Hackett procurement practice leader, said: "Firms need to look at the long term to see the return in terms of savings and innovation."

Director Pierre Mitchell, added: "This is how they [world-class firms] generate the millions of dollars in additional savings that typical firms don't see."

The Hackett Group assesses performance for back-office functions in major companies around the world. These functions include HR, supply chain, IT, finance, purchasing and legal services. The group defines "world-class" as organisations in the top 25 per cent of its field for effectiveness and efficiency, which typically consists of about 80-100 businesses.

Its latest research also found world-class purchasing operations cost around 20 per cent less to run than typical firms with about half as many staff.

The best-performing businesses operate with 46 per cent fewer suppliers, are nearly five times more likely to be involved in company-wide planning and make more use of cross-functional teams.

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