Procurement operating costs rise for first time in 10 years

Research from the Hackett Group indicates that procurement operating costs have gone up for the first time in more than a decade

The new report from The Hackett Group called ‘Resilience: The Digital World Class Procurement Advantage’ is attributing the increase to unprecedented uncertainty, including supply disruptions, inflationary pressures, and environmental, social, and governance initiatives.

The report does say though that procurement operations they categorise as ‘Digital World Class’ are making headway as they spend less and achieve a higher ROI.

What is ‘Digital World Class’?  

Digital World Class procurement teams are ones that The Hackett Group define as leaders in digital transformation.  They achieve top quartile performance in business value, digital enablement and operational excellence.

Despite year-on-year increases in operating costs, procurement operations working at the highest level were able to operate at 21% lower cost than their peers and have 32% fewer staff.

The research suggests that because of their lower operating costs, those companies now have an $6mn annual cost advantage for an average $10bn enterprise.

Principal at The Hackett Group Chris Sawchuk said “To achieve their impressive performance improvements, Digital World Class organisations 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.”

Rising costs for procurement operations 

Responses to the research indicate that factors like supply disruption and inflation have caused unprecedented challenges over the last 12 months, and have driven up costs for all procurement organisations.

According to Senior Research Director Amy Hillcox, “The performance advantage achieved by Digital World Class procurement organisations 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.”

You can read the full report here 

Read more on Procurement Magazine’s top 10 strategies for coping with the high inflation environment here.


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