Hackett: Procurement Operating Costs Increase For the First Time in a Decade

July 20, 2023 at 10:00 AM EDT

Digital World Class Procurement Orgs Drive 2.4X Greater ROI While Spending 21% Less on Operations

Procurement operating costs at typical companies increased for the first time in more than a decade this year, in response to unprecedented uncertainty, including supply disruptions, inflationary pressures, and environmental, social, and governance initiatives, according to new Digital World Class^® research from The Hackett Group, Inc. (NASDAQ: HCKT).

Despite increases in year-on-year operating costs, Digital World Class procurement organizations excel at cost optimization compared to typical organizations, The Hackett Group^® found. They now operate at 21% lower cost than their peers and have 32% fewer staff. In addition, Digital World Class procurement organizations see improved resiliency, provide their companies with greater business value and demonstrate higher levels of business excellence across a wide array of key metrics. For example, they drive nearly 2X more savings due to spend cost reduction, generate a 2.4X higher ROI, are 86% more likely to be viewed as a valued partner, and see 76% lower process costs per order. As a result they are better able to navigate uncertainty, risk and complexity because they have greater strategic focus and are more adaptive to changing circumstances.

Because of their lower operating costs, Digital World Class procurement organizations now have a $6 million annual cost advantage over their peers (for a typical $10 billion enterprise), the research found. The research answered the question as to the value of effective digital transformation by highlighting an undeniable correlation between Digital World Class and improved overall enterprise performance. The data concluded that companies with at least one business services function operating at Digital World Class levels see a five-year average performance premium over their industry medians. These include an 80% higher net margin, 24% higher earnings before interest, taxes, depreciation and amortization margin, 89% greater return on equity and 44% higher total shareholder return.

A public version of the research, “Resilience: The Digital World Class Procurement Advantage,” is available free, with registration, at https://go.poweredbyhackett.com/rdwcafin2305sm. It contains nearly 50 metrics detailing the performance advantage of Digital World Class procurement organizations versus their peers, along with six key areas where Digital World Class companies excel and a representative action plan to close the gap.

According to Senior Research Director Amy Hillcox, “Inflation, supply disruption, and other factors presented unprecedented challenges over the past year, driving up costs to support both typical and Digital World Class procurement organizations. But despite this, the performance advantage achieved by Digital World Class procurement organizations is more impressive than ever. They are better at navigating uncertainty, risk, and complexity than peers because they are more disciplined at maintaining strategic focus and more adaptive to rapidly changing circumstances. In large part, they do this by harnessing actionable data more effectively, which enables them to deliver faster and better insight, and make better decisions.”

Principal Chris Sawchuk added, “To achieve their impressive performance improvements, Digital World Class organizations obviously focus procurement strategy on technology enablement. But to truly unlock the potential of technology, they also invest appropriately in the five other areas as well: data and advanced analytics; modern cloud architecture; evolving their operating model; more effective business partnering; and improved talent management.”

The Hackett Group defines Digital World Class organizations as those that achieve top-quartile performance in business value (a composite of stakeholder experience, digital enablement and traditional effectiveness metrics) and operational excellence (a composite of efficiency and business process automation metrics) in The Hackett Group’s comprehensive procurement benchmark. The Hackett Group’s Digital World Class procurement research is based on an analysis of results from recent benchmarks, performance studies, and advisory and transformation engagements across hundreds of global companies.

About The Hackett Group

The Hackett Group, Inc. (NASDAQ: HCKT) is a leading benchmarking, research advisory and strategic consultancy firm that enables organizations to achieve Digital World Class^® performance.

Drawing upon our unparalleled intellectual property from more than 25,000 benchmark studies and our Hackett-Certified^® best practices repository from the world’s leading businesses – including 97% of the Dow Jones Industrials, 93% of the Fortune 100, 73% of the DAX 40 and 52% of the FTSE 100 – captured through our leading benchmarking platform Quantum Leap^® and our Digital Transformation Platform, we accelerate digital transformations, including enterprise cloud implementations.

For more information on The Hackett Group, visit: https://www.thehackettgroup.com/; email info@thehackettgroup.com; or call (770) 225-3600.

The Hackett Group, Hackett-Certified, quadrant logo, World Class Defined and Enabled, Quantum Leap, Digital World Class and Hackett Excelleration Matrix are the registered marks of The Hackett Group.

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