“Procurement leaders should learn where their sourcing employees spend the most time and whether it is worth the investment.”
The quote is from a 2017 study by The Hackett Group, which goes on to explain that, as procurement's role becomes increasingly strategic, sourcing teams already stretched thin face new demands and procurement challenges. According to that same 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.
The following are some of the 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.
So, how can procurement efficiency be improved? Find a way to keep the high-ROI projects and reduce 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 three months. This is why the ROI of the 31% must be measured for each project. It's another powerful way of how to improve your procurement department – and serves as a perfect example of impactful spend management in procurement.
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 would benefit from an alternative approach. Doing so is sure to solve many procurement challenges.
For non-critical spend, procurement expects 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 a better return for less-strategic categories
- Shares recommendations on how procurement teams can optimize resource allocation
Download the report today to learn how to make the best use your time and resources to maximize ROI and overcome many common procurement challenges.