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14 August 2014 | Gurjit Degun
Becoming a trusted advisor to the business, driving supplier innovation, and focusing on risk management are some of the ways that the top procurement organisations outperform their peers.
Research from the Hackett Group found that “world-class” procurement departments operate at almost 20 per cent lower cost as a percentage of spend than the average company. “They also have 27 per cent fewer employees,” the report said. “But world-class procurement organisations may have reached the limit of their ability to reduce costs.”
It explained that the ability of the top companies to generate savings “declined dramatically” in 2014, falling by more than 17 per cent. “The Hackett Group expects return on investment (ROI) at world-class procurement organisations to further decline next year,” the report said. “At the same time, ROI at typical procurement organisations is expected to show a slight upward trend, improving by 4 to 7 per cent in 2015.”
The research highlighted five areas that top procurement businesses are developing to better differentiate themselves. These are:
• Trusted advisor. The most successful procurement organisations “proactively understand” what drives the requirements of the business as opposed to “simply facilitating the buying process,” the research said.
• Driving supplier innovation. The Hackett Group found the top-quartile procurement companies “now drive more than twice as much incremental revenue as typical companies through supplier innovation efforts”.
• Providing insights. The report said the top performing businesses have a significant level of information available nearly 90 per cent of the time, more than twice as often as typical companies. “They have also mastered this competency to the point that analytics, market intelligence and benchmarking are offered on demand as a service to key stakeholders,” the Hackett Group said.
• Risk protection. Businesses with a formal strategy for assessing risk have nearly 25 per cent greater procurement ROI than those without them, the Hackett Group's research found. “This includes completing supplier risk assessments and working with finance and other stakeholders to determine the best mitigation strategy when risk exposure is identified,” it said.
• Agile staffing. The leading procurement organisations hire globally and from other parts of the business, “opening the door to new sources of skills and fresh thinking,” the study explained. It added such businesses also provide more training hours per employee, invest in more retention planning and pay higher salaries.