Billions to be saved by offshoring procurement
By Dave Hannon -- Purchasing, 11/10/2006 5:27:00 AM
A recent report from the Hackett Group found the Fortune 500 could collectively save $58 billion annually, or more $116 million on average per company, by offshoring many of their back office activities—including procurement.
According to Hackett, advances in technology, along with increasingly educated global work forces, enable the portability of business support activities in areas like information technology, finance, human resources and procurement. Hackett’s estimates show the average Fortune 500 company could save almost $10 million a year by outsourcing or offshoring procurement functions such as purchase order processing and sourcing execution. Those moves would impact, on average, 275 procurement jobs per company. Hackett found many companies are relying on outdated sourcing analysis techniques that lead them to materially underestimate the benefit available through off-shoring back office operations. With labor arbitrage savings nearing 60%, Hackett finds that executives must analyze their process optimization opportunities to capture the potential value of centralization. According to Hackett Managing Director Michel Janssen, "Today, companies can turn to established offshore resources that deliver labor costs reductions while maintaining or even improving the skill level of staff. The potential savings of up to $116 million annually for a company are simply too compelling to ignore."
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