Top brass pony up for IT

World-class procurement executives spend 27 percent more than their peers on technology, despite the fact that they spend dramatically less on procurement operations overall, according to business process advisory firm The Hackett Group.

Increased spending and improved leverage of existing technology investments are key strategies that enable world-class procurement executives to shift spending away from transactional activities and towards work that provides higher strategic value and improves effectiveness, according to The Hackett Group. For example, world-class procurement executives allocate 36 percent more of their overall procurement resources to decision support and risk management than typical companies.

Quick Statistics

Higher tech spending: 19%, compared to 11% at typical companies higher (dramatically less on procurement operations overall)
Ratio of technology-to-labour cost : 94% higher than peer group
Cost per purchase order reduction : 134% less than typical companies
Staff reductions: 38% fewer staff than typical companies

Technology also enables world-class procurement executives to improve efficiency, helping them reduce their cost per purchase order to $8.54, while typical companies spend 134 percent more. In addition, world-class procurement executives operate with 38 percent fewer staff than typical companies, show significantly improved cycle times, and reduced error rates.

According to Hackett’s Book of Numbers research, world-class procurement executives dedicate 19 percent of their total operational spending to technology, compared to 11 percent at typical companies. The ratio of technology-to-labor cost further illuminates the dramatic disparity in technology spending levels, with world-class companies investing 94 percent more on technology per labor dollar than the peer group.

“Our research clearly shows that world-class procurement executives have been much more successful than their peers at swapping out labor for technology,” explained Hackett Senior Business Advisor Christopher S. Sawchuk. “It’s a key strategy that helps them provide greater strategic value while reducing their overall cost of procurement operations. The best procurement organizations utilize technology to help them deal with lower value-added activities, which frees up funds and staff time, some of which can then be invested elsewhere. Less time and money spent on transactional tasks means that world-class procurement executives can drive their organization to focus more intensively on leveraging their spending more effectively through supplier rationalization, spend visibility and analysis, aligning procurement with business strategy. All this can help turn procurement into a virtual profit centre.”

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