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Focus: Sourcing/Procurement

Feature Article from Our Sourcing and Procurement Subject Area - See All

From SCDigest's On-Target e-Magazine

- Sept. 2, 2014 -

Supply Chain News: The Five Characteristics of World-Class Procurement Organizations


Hackett Group Research Says Procurement Leaders Drive More than Twice the Level of Savings as the Average Company


SDigest Editorial Staff 


Top performing procurement organizations drive substantially more value for their companies than do average performers.

That's one of the key takeaways from the latest research report from a trio of experts at The Hackett Group, a consulting and services firm with a focus on procurement.


SCDigest Says:


Procurement leaders provide more training and invest more in retention planning - and they also pay higher salaries."

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Take for example, the chart a little further down the page, which shows the ratio of investment in procurement resources to the savings in purchased goods and services.

As can be seen, in 2014 Hackett says procurement leaders will see costs savings nine times their investment in procurement, more than twice the 4.06 ratio seen by average firms. That is quite a difference, though Hackett estimates that gap will close a bit over the next few years.

It is also worth noting that both procurement leaders and average companies have seen that ratio jump quite a bit from where the metric stood a decade ago in 2005.

What characterizes these procurement leaders from more average performers? Authors Patrick Connaughton, Srinivasa Rao Dabber, and Christopher Sawchuck identify 5 key attributes that make the difference between average and leading procurement performance:

1. Being a trusted advisor to the business: Half of world-class procurement organizations report a high level of involvement in the company's budgeting and planning cycle, Hackett says. "They are considered valued business partners by the organization, not gatekeepers or administrators."
The authors note that "When the requirements are truly understood, costs can be reverse-engineered, making it possible to explore potentially less-expensive and/or higher-quality alternatives."

2. Driving suppliers to innovate: World-class procurement groups are more effective than average companies at harnessing the intellectual capital of their suppliers to bring new and innovative solutions to bear, helping to influence - not just support - the business strategy.

"Procurement organizations that have invested in formalizing the innovation life cycle (spanning idea formation, evaluation, development, productization and continuous improvement) have seen positive results," the authors say.


3. Providing analytics-backed insights: World-class procurement works closely with the business during operations planning and budgeting periods to provide predictive insights on supply markets, Hackett says. But to do that effectively obviously requires having the right technology tools in place.

Hackett found that among world-class organizations, 89% have a significant level of information available to work with, compared to just 43% of the peer group.

"World-class procurement organizations have mastered this competency to the point that analytics, market intelligence and benchmarking are offered on demand as a service to key stakeholders," the authors say.

(Sourcing and Procurement Article Continues Below)





4. Protecting the business from risk: Almost every company is concerned about supply chain risk these days, from ensuring supply to focusing on regulatory compliance on a global basis.

But procurement leaders have more formal risk management programs than average companies, Hackett says. That includes completing supplier risk assessments and working with finance and other stakeholders to determine the best mitigation strategy when risk exposure is identified. But even in the best companies, risk management is challenged by the lack of a mandate and limited resources to do the job, the report notes.

5. Taking an agile approach to staffing: Talent management also sets procurement leaders aprt from the pack, Hackett says.

For one thing, they provide more training and invest more in retention planning - and they also pay higher salaries. This helps explain why they require substantially fewer FTEs than the peer group and are more productive overall. (See graphic below.)


Leaders also are moving away from individual talent management ("just put the best people on the toughest challenges") to knowledge management., or the development of institutional learning.

Soon, "Procurement staffs will be required to blend critical business skills (e.g., transformation experience, relationship building, management and communication skills, and strategic thinking) with emerging skills (e.g., category knowledge, global supply market and technology know-how, and risk assessment)." Hackett says.

In conclusion, the authors observe that "The strength of the vision of future supply processes is a key predictor of the evolution procurement's value proposition. No single action will instantly elevate procurement's brand and value proposition. Rather, continual self-reinvention is required."


Do you like Hackett's list of 5 characteristics of procurement leaders? What would you add? Let us know your thoughts at the Feedback button (email) or section (web form) below.

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