Tech can cut procurement costs by 24%

14 August 2017

Technology has the power to cut process costs for typical procurement organisations by up to 24%, according to a study.

For world-class procurement organisations, advanced analytics, robotic process automation (RPA) and other digital tools can generate cuts costs by 35%, said Hackett Group’s Raising the World-Class Bar in Procurement Through Digital Transformation.

According to the research typical procurement organisations can substantially narrow the gap between their cost levels and those of top performers.

World-class procurement organisations boast 22% lower labour costs than their peers and have 29% fewer staff.

The study said a typical company with $10bn revenues, which became a world-class performer in procurement, could gain as much as $6m in potential annual functional cost savings.

Meanwhile, world-class procurement organisations typically generate twice the ROI of typical procurement organisations. These top organisations generate more than $10 in savings for every $1 of procurement operating cost, the research said.

These organisations show 45% lower annual procurement staff turnover, which is a sign that staff are being given opportunities for professional growth.

Christopher Sawchuk, a principal and global procurement advisory practice leader at Hackett, said: “Technology has always played an important role in enabling performance, but procurement has reached an inflection point.

“World-class [organisations] can continue to reduce costs by embracing digital technology, and typical procurement organisations can leverage the same technology to catch up faster at less cost.”

He said digital technology had created tremendous opportunities for procurement organisations to “transform service delivery, reduce errors, make information easier to access, and deliver a whole new class of services”.

Robert Derocher, a principal at Hackett, said software could reduce the time it takes to find and qualify suppliers by more than 30% and e-sourcing software could cut overall cycle time by 30%.

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