Best practices: Hackett Group outlines the world-class procurement organization
By Dave Hannon -- Purchasing, 12/8/2006 1:55:00 PM
A recent Hackett Group report found that top-performing procurement organizations emphasize two key best practices: centralization and cross-functional teams.
Hackett found that a company with $1 billion in annual spend can save $8 million in process costs alone by increasing the percentage of contracts negotiated centrally from 20% up to 80%.
Hackett also says world-class procurement organizations reduce complexity through strategic sourcing and consolidating their purchases among 78% fewer suppliers than typical companies.
“World-class organizations also seek synergies across business functions through cross-functional cooperation to achieve common goals. For instance, procurement staff work alongside their functional peers to understand business needs, plan spending, and supplier selection (at the best price), taking into account both current and future needs.”Specifically, Hackett says world-class procurement organizations are more than three times as likely as typical companies to rely on cross-functional teaming for supplier development.
According to Hackett senior business advisory Pierre Mitchell, “The best companies may differ in their size, industry, or regulatory environment. But what they share is their ability to use back-office functions, traditionally viewed as cost centers, to generate competitive advantage.”
A year ago, Hackett reported that world-class procurement organizations generate 133% greater return on their investment in procurement than typical companies, driving an additional $3.6 million to their company's bottom line for every $1 million in procurement operations costs.
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