Hackett on Raising the World-Class Bar in Procurement – Good Report with One Oddity!

The recent Hackett report titled Raising the World-Class Bar in Procurement Through Digital Transformation has some useful analysis and is worth a look for anyone considering how to improve a procurement function. It’s available to download here , free on registration.

According to the report, world-class procurement organisations have 29% fewer full-time workers than comparable “average” performers, and staff costs are 22% less (which suggests cost per employee is slightly greater in top-performing organisations, which makes sense).

But how can these paragons of performance achieve more with less? One indispensable factor is digital technology, the report says. The leaders use technology to automate and support routine and time -consuming tasks, which boosts the efficiency metrics. So perhaps the most interesting chart in the report shows that pretty much the entire difference between leaders and others in terms of how time is spent is in the “Operational and Compliance Management” activities, rather than in sourcing, strategy, general management, etc.

That is also supported by data such as the “cost per order” numbers, which show a far lower cost for the best organisations than the rest, driven presumably by sensible technology investment. Hackett has also  “calculated the additional cost savings that world-class and peer-group procurement organisations could accrue from the adoption of digital technologies … We found that digital transformation can essentially close the cost gap between the two comparison groups”.

According to the report, while it usually takes more than five years to become a world-class procurement organisation, two years can be all that is needed to see “marked improvements.” I think we would agree with that. Even two years is quite challenging, but we can think of some procurement change programmes, with the right leadership, that have delivered significant benefits within the two-year horizon.

One oddity in the report is the data on staff turnover, which frankly we just don’t believe. Apparently the best organisations have a much lower annual turnover rate (which is logical), at 1.7% compared with the 3.1% for the peer group of more typical-performing companies.

Well, 1.7% means that the average employee stays in their job for almost 60 years. It means that in a team of 100 procurement staff, less than 2 a year leave. Assuming that includes retirement, babies, death, relocation, as well as simply changing jobs, it is just not credible. Average turnover in most major developed countries seems to be in the 9% – 14% a year range, according to a quick bit of desk research, which seems far more credible.

The final section of the report (which is only 7 pages, so not too demanding a read) is a list of “Six Digital Accelerators” – such as “Digital customer engagement, or using digital tools to optimize and integrate the procurement customer experience”. Digital workforce enablement and cognitive computing are two more areas of interest. Although they are brief, these overviews identify some useful areas that any procurement function should be considering as it plans and looks to the future, particularly in that area of digital development.

Anyway, it’s worth taking a look here at the report in its totality.

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