Procurement excellence leads to world-class status

11 December 2006
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11 December 2006 | Antony Barton

"World-class" companies cut costs by an average of $60 million (£31 million) per billion of revenue each, according to The Hackett Group.

The statement came as the group released its 2006 Enterprise Book of Numbers. Based on analysis of back-office performance from 2,100 of the world's leading companies, Hackett identified a widening gap between world-class organisations and typical companies. "World-class", in Hackett's findings, refers to companies that have achieved top-quartile performance across a range of efficiency and effectiveness metrics.

The world's top companies show strength in five categories: strategic alignment of business goals and operating procedures; complexity reduction; technology enablement; business processing sourcing; and cross-functional partnering.

The results show that world-class procurement organisations use 78% fewer suppliers than typical companies. According to the findings cuts in procurement, IT, finance and human resources generate the savings. World-class firms also spend 25% less than typical organisations while saving an additional $3.6 million for every $1 million of procurement spend.

Leading companies also spend 7% more per end user on IT than their peers, which makes it the only area where world-class companies spend more than other companies, according to Hackett. These same organisations spend 17% more on outsourcing technology infrastructure, which enables them to spend 20% less on IT labour.

SMdec2006

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