“Procurement leaders should learn where their sourcing employees spend the most time and whether it is worth the investment,” states the latest study by The Hackett Group.
As procurement’s role becomes increasingly strategic, sourcing teams that are already stretched thin face new demands. According to the report, “Are Strategic Sourcing Resources Providing the Best Return?”, the overall strategy of procurement needs to change, particularly around work selection and prioritization.
To continue improving ROI, teams should evaluate how their time is being used and the returns they see from their efforts.
Here are a few key findings from the report:
“Sourcing execution accounts for 22% of procurement FTEs (full-time employees), which is higher than any other process area.”
This includes everything from conducting an RFP on new spend to negotiating with an incumbent supplier. The ROI of these projects varies drastically.
Is there a way to keep the high-ROI projects and limit those that have limited value?
“Contract creation, negotiation and approval takes an average of 31% of the overall time required to complete a sourcing process.”
That 31% could represent a sourcing project that takes a few hours, but it could also be for a highly-complex project that takes over 3 months. The ROI of this 31% must be measured for each individual project.
The typical procurement professional manages 3.9 spend categories.
The average procurement generalist supports both non-critical spend (routine, low-value items) and leverage products (commodities with a high impact on profitability). Non-critical spend accounts for 79% of their time, while 21% is dedicated to leverage spend.
With the amount of time generalists devote to non-critical spend, The Hackett Group proposes that this arrangement is ripe for an alternative approach.
For non-critical spend, procurement expects a 12% savings; their actual savings is only 10%.
When actual savings are less than expected savings, you need to ask yourself whether going to market is the most efficient way to achieve your required savings numbers. Particularly when a category has been sourced multiple times in the past decade, The Hackett Group suggests there’s a smarter way.
In the report, The Hackett Group highlights the challenges impacting strategic sourcing benefits, identifies alternate approaches that offer better return for less-strategic categories and shares recommendations on how procurement teams can optimize resource allocation.
Download “Are Strategic Resources Providing the Best Return?” today to learn how to make the best use your time and resources to maximize ROI.