World-Class Procurement Organizations Boast 29% Fewer Staff and 21% Lower Labor Costs

For every 10 employees that average procurement organizations have, their world-class peers have just seven, according to new research from The Hackett Group. Not only do world-class procurement organizations boast 29% fewer staff, but their labor costs are also 21% lower.

They are accomplishing this by standardizing and automating routine tasks, achieving significantly higher ROI and executing a more effective talent management strategy. Staff turnover, for instance, is a third lower at world-class procurement organizations than their peers.

These numbers come from The Hackett Group’s 2018 analysis of its procurement benchmarking database, the results of which are published in the report “Raising the World-Class Bar in Procurement Through Digital Transformation.”

The ability of world-class procurement organizations to operate with 21% lower labor costs and to deliver services with 29% fewer full-time equivalents (FTE) translates into significant savings. As the report authors write, “for a typical company with $10 billion in revenue, attaining world-class performance in procurement represents as much as $6 million in potential savings annually.”

Source: The Hackett Group

Source: The Hackett Group

As the chart above shows, average and world-class procurement organizations tend to devote the same number of staff to the areas of management and administration; planning and strategy; and sourcing and supply base management. Where the two differ, however, is in the area of operations and compliance management, where world-class procurement organizations hire significantly fewer full-time employees.

Furthermore, ROI as measured by the ratio of total savings generated by procurement to total operating cost is remarkably higher for world-class procurement organizations. While average procurement organizations manage an ROI of 4.7, for world-class procurement organizations this figure is 10.7.

Contributing to the success of world-class procurement organizations is their ability to retain employees. Not only does lower turnover lower costs, it also allows for the retention of organizational knowledge. The Hackett Group has found that world-class organizations are 111% more likely to create retention plans.

Digital transformation also plays an important role in talent strategy. But the good news here is that average procurement organizations stand to reduce process costs by 30% through digital transformation, whereas world-class procurement organizations stand to improve by 22%. The Hackett Group estimates that achieving world-class performance can take more than five years, though two years is all it takes to see noticeable improvements.

The report concludes with the following six digital accelerators, or “top imperatives for improving procurement’s performance and supporting the business strategy over the long term”:

• Digital engagement
• Robotic process automation (RPA)
• Analytics-driven insight
• Modern digital architecture
• Digital workforce enablement
• Cognitive computing

The full report can be downloaded here.