When it comes to bringing two of the best analytical minds in the Spend Management business in a room together, you can't do any better than Hackett's Chris Sawchuk and Pierre Mitchell. And at LIVE, Ariba was able to do just that, inviting Chris and Pierre to the stage at the same time. As a side note, one wonders why Ariba does not get closer to the Hackett procurement practice to jumpstart their advisory services given the size and depth of their installed base -- what a fit that would be. But until this happens, I'll stick to analyzing the numbers. The Hackett Book of Numbers, that is.
During the presentation, the dynamic benchmarking duo shared an update on their always fascinating data. And in addition, they proffered up a perspective on how companies can get past the "tipping point" of driving the best possible efforts and results inside their own Spend Management operations. Personally, I've always found the contrasting benchmarks between what Hackett defines as "world class" procurement and the overall peer group absolutely fascinating. As an update to some other recent posts on Hackett's analysis and perspective which you can find here and here, I thought it might be useful to cite some of their most recent findings which they shared at the Ariba event.
So without further adieu, here goes. First, based on their latest analysis, Pierre and Chris shared that the return on investment (the ratio of total spend cost savings relative to the cost of procurement) for world-class organizations is 150% greater than it is for the peer group. And world class organizations spend less overall on procurement as well -- 23% less, to be exact (factoring in such areas as labor, outsourcing, and technology in total). However, world class organizations do tend to spend more on strategic sourcing and analysis than their peers (which is not surprising, given the returns such activities can bring).
What are some other factors that separate out world class performers? A "high degree" use of total cost models for sourcing is one area (these models might include such areas as the cost of quality, freight, logistics, handling, duties, tariffs, etc.). In this case, 33% of world class organizations use these types of models to a high degree compared with 21% of the peer group (a 57% difference). One thing that surprised me in their latest data is that the annual procurement turn-over is higher at world-class organizations than it is for average performers (15.8% versus 10.2%). This finding speaks to the need to institutionalize not only talent management and training, but recruitment as well. Fascinating stuff, I say.