Study: Reductions In Procurement Costs Eluding Companies

Unable or unwilling to effectively use new technology, most companies have stalled in reduction of procurement function costs, says an ongoing benchmark study by Hackett Benchmarking/solutions, part of AnswerThink Consulting Group. Average procurement cost as percent of total purchased costs dropped less than 5% in the last three years -- from 1.04% in 1996 to 0.99% in 1999. And while procurement staff size at the average firm has shrunk 13%, cutbacks in clerical workers coincided with a rise in number of professionals, offsetting cost savings. The study indicates many managers and professionals are doing clerical and routine tasks, rather than investing more time in building stronger relationships with suppliers and internal customers, says Hackett managing director Richard Roth. Such lags have kept the procurement function from becoming a true value-driver in the average firm, he says. "Finding ways to boost procurement's spending effectiveness by just 2% could eventually mean an increase of $100 million in shareholder value for a billion-dollar company."