Five strategies that make procurement more efficient and effective

The latest report from The Hackett Group Inc., "The World-Class Performance Advantage: Five Imperatives for Creating Greater Procurement Agility," identifies five strategies to make procurement more cost-effective and efficient. The initiatives proposed by the analyst group are based on an analysis of Hackett's procurement benchmarking database, which identifies companies that have world-class procurement operations and then compares those leaders to the rest of their peer group.

Some of the recommended strategies include:

1. Adopt a formal service-delivery model. Organizations such as global business services/shared service units and centers of excellence (COEs) allow companies to centralize both transactional work (in the case of a shared services unit) and more high-value work (in the case of COEs). This centralization results in reduced cost and increased efficiencies, says the report.

2. Apply new digital technologies. According to the Hackett report, procurement organizations need think about how they can use cloud-based infrastructure and applications as well as collaboration technology to improve their processes.

In an interview, Christopher Sawchuk, principal and global procurement advisory practice leader at Hackett and one of the co-authors of the report, suggested that procurement organizations should investigate how they can adapt some of the technology currently being used on "the customer side of the house" to their own processes. One example that he gave was incorporating the "guided buying experience" used by online retailers such as Amazon into procurement processes. Guided buying involves a website automatically suggesting other purchases based on someone's buying history.

"[Such] digitally enabled processes reduce errors and make information easier to access, freeing procurement staff for higher-value work," the report states.

3. Embrace advanced analytics. One emerging technology that may prove especially fruitful to procurement is advanced analytics that monitor external conditions and then suggest certain business decisions or actions (such as buying a particular commodity). According to the report, world-class procurement organizations, on average, are investing more in analytics than their peers. The report also recommends creating a dedicated analytics group within the procurement organization. According to the report, for large, multinational businesses this may involve creating an analytics center of excellence. Smaller companies, however, may need to dedicate only one staff person.

4. Design services and processes to be customer-centric. Oftentimes procurement processes are designed to make the procurement professional or department more efficient rather than to make the internal customer more effective. According to the Hackett Group, however, world-class procurement organizations design their processes so that they respond to an internal stakeholder's or customer's needs and wants. Many world-class procurement organizations even have formal service-level agreements for internal customers to make sure that the procurement organization is meeting their needs.

5. Dedicate more staff to performing strategic activities rather than transactional, compliance-focused ones. According to the Hackett Group's analysis of its procurement benchmarking database, world-class procurement organizations have a larger percentage of their staff allocated to sourcing, supply base strategy, and planning/strategic roles, while others are more focused on operations and compliance management.