Procurement Professionals Emphasis on Talent Preservation
As a proportion of total procurement employ, world-class procurement establishments spend 18 percent less on labor (by far the largest cost in procurement) and 13 percent more on outsourcing than typical companies. They also see more than twice the return on investment (the ratio of total savings generated by procurement to its total operating cost) — generating a 9.5 times payback on investment versus 4.6 times for typical companies. However, this analysis is expected to rise only marginally for all companies for about next five years, as cost reductions and savings continue to level off.
In addition to operating with dramatically less staff, world-class procurement organizations also distribute their staff in a different way. They devote a significantly larger percentage of the overall staff to sourcing, supply base strategy and planning/strategic roles, and have a much smaller percentage of people captivated on operations and compliance management.
Many topnotch organizations are investing in the new wave of cloud-based applications and services stretching from core end-to-end procure-to-pay (P2P) systems to process-specific applications such as risk forecasting and planning, e-sourcing and spend analysis, the research finds. Cloud-based infrastructure and applications, virtual business and technology networks, and business analytics are coming together with rapidly transitioning employee and consumer bases that are increasingly adept with new mobile technologies and business models.
This merging strategy is creating wonderful new openings and opportunities for procurement organizations to apply digital technologies to renovate their service delivery and efficiency. Progressively, this becomes the stage for providing a whole new class of services, such as information and predictive analytics to monitor decisions. Digitally-enabled processes also reduce chances of errors and make information easier to access, releasing procurement staff for higher-value and more efficient work.
The research has found that topnotch procurement organizations spend 23 percent more on technology per staff person, and the investment yields real productivity gains at world-class procurement organizations, including 71 percent lower cost per order than usual companies.
A high use of automation and technology also allows procurement department to invest more time on talent development and business efficiency-related activities.
World class procurement organizations also started to selectively outsource in areas such as procurement system support, supplier help desks and market intelligence to tap into greater expertise, augment knowledge, and leverage the capacity and capability of third-party and other providers.
Further, for higher procurement ROI, world-class organizations are more effective in operating and delivering services. For example, the research said that their percent of transactions requiring post-issuance activity to resolve discrepancies in areas like order quantity, quality and pricing is often two to three times less compared to peers.
Fewer or no errors mean that topnotch procurement organizations have higher quality process execution than others. These differences have real bottom-line impact: The high number of transactions for some transactional processes and the cost to correct errors means the total cost gap between world class and peer organizations can be in the millions of dollars.
Last but importantly, world-class procurement organizations are nearly twice as expected to have talent retention planning in place, and see turnover rates that are more than 50 percent lower than usual companies, illustrating the ability of world-class procurement to generate results that impact business performance and efficiency.