‘World-class’ procurement teams cost less, research finds

13 August 2015

Procurement organisations that are rated “world-class” deliver services at 17 per cent less cost as a proportion of spend than other companies, according to research.

A study by The Hackett Group concluded that they were also more effective by becoming more customer-centric.

The World-Class Performance Advantage: How Procurement Organizations are Reinventing the Stakeholder Experience report, found the best procurement organisations excelled at cost reduction and delivered services at 17 per cent lower cost than other typical companies, while requiring 26 per cent fewer staff. They operate at dramatically higher levels of effectiveness, delivering superior stakeholder satisfaction, in part because they have successfully transformed into truly customer-centric organisations, the study concluded.

Key differences between better performing procurement organisations and the rest was their superior ability to gain a deep understanding of the needs of their business, react more quickly to changing requirements, and drive higher overall value and greater stakeholder satisfaction, the research found.

World-class procurement organisations continued to invest in activities that elevate their role to that of a trusted advisor, the report said. Procurement organisations that are viewed as a true business partner report 68 per cent higher savings than those viewed as gatekeepers, reflecting higher effectiveness at both cost reduction and cost avoidance.

Procurement organisations that have improved stakeholder alignment report 28 per cent higher savings than those that have not.

The Hackett Group's research is based on an analysis of results from recent benchmarks, performance studies, and advisory and transformation engagements at hundreds of large global companies.

Chris Sawchuk, global procurement advisory leader, said world-class procurement organisations had made major strides in becoming true client-focused service providers.

"They have increased the scope of their spend influence, the savings they are able to capture, and the value delivered beyond hard-dollar savings, in part by emphasizing on-demand analytics and market intelligence, and realigning their service portfolio,” he said.

Sawchuk added that more typical procurement organisations would have to market themselves in new ways to build business awareness. "They need to learn how to speak the language of the business, change how they're viewed, build trust, and gain permission to take on higher-value work over time," he added.

The Hackett Group recommended procurement organisations improve customer experience by identifying and understanding key stakeholders, developing formal customer satisfaction surveys tailored to key stakeholders, and by using ad-hoc and structured approaches to gain deeper insights.

Procurement can improve their level of customer service by taking a holistic view, and by implementing self-service tools to answer common inquiries and provide real-time visibility into order status, the report recommended.

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