Running The Numbers - August/September 2005


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The latest facts, figures and benchmarking data in the procurement/payment, supply chain management, sourcing/logistics, and the supply chain integration & technology infrastructure markets


According to the Hackett Group, reporting in its latest "Procurement Book of Numbers," there is a direct correlation between a decrease in the number of suppliers/billion of spending and decreased total procurement cost as a percentage of spending. Each reduction of 2,000 suppliers per billion of spending generates savings of more than 5 percent of overall procurement costs.

Most importantly, Hackett found that when companies reduce the number of their suppliers, they are able to focus proportionately more of their resources on building stronger, more strategic, relationships with the resulting effect that they are able to simultaneously gain purchasing leverage and lower the cost of ongoing supplier monitoring and management.

According to Hackett, if 80 percent of a company's annual spend is spread across 20 percent of its suppliers, every dollar spent on procurement translates into $2.10 of spend reduction. For a typical company with $1 billion in spending, this translates into an annual spend reduction of $21.5 million derived from a $10.1 million investment in the procurement function. But if companies concentrate their annual spend across less than 2.5 percent of their suppliers, the ratio of spend reduction to procurement process costs is over 5 to 1. In other words, that same company could realize an annual spend reduction of $51.4 million, doubling the previous savings figure and increasing the procurement function's return on investment to over 500 percent.

"Few companies still cling to the belief that working with a large pool of suppliers keeps cost down," said Hackett Procurement Practice Leader Chris Sawchuk. "The empirical evidence is unequivocally to the contrary."

Finally, Hackett found that world-class procurement organizations embrace techniques to reduce complexity beyond supplier relationships in many other areas of procurement. For example, 100 percent of all world-class procurement organizations use both a company-wide item master file and company-wide commodity coding.

Source: The Hackett Group

RFID

Shakeout Impending in the RFID Industry?

Increasingly, attention is turning to the software that enables RFID data use within the enterprise. New initiatives are flying thick and fast.

ABI Research believes that this space is primed for a shakeout in the coming six to nine months. There will be rollups, acquisitions and consolidation as the need for more focused RFID-related software and applications grows, the technology research firm writes in its latest "RFID Research Service," which provides updates on the rapidly changing RFID market.

According to Erik Michielsen, ABI Research's director of RFID and ubiquitous networks, movement into this software space comes from several directions. "SAP (with its Auto ID Infrastructure, part of NetWeaver) is pushing down from the enterprise application space and picking up functions traditionally done by OATSystems, Acsis, Connecterra, Sun and GlobeRanger," says Michielsen.

In turn, some of these companies are broadening their focus beyond RFID middleware and into data analytics, business intelligence and automation networking. "OATSystems is a good example of this," Michielsen notes. "OAT is pushing up and becoming competitive with some NetWeaver functionality; and it is joined in the business intelligence space by T3Ci."

Sun, Connecterra, Oracle and Microsoft are all moving into this field according to their respective strengths, ABI writes.

Others, such as Manhattan Associates and Siemens, continue to develop RFID middleware in house, but Michielsen questions their need to keep building closed-system and/or customized solutions between the reader and the enterprise application integration layer, commenting, "I think they would be better off partnering and focusing resulting free energy on services and higher end software."

Source: ABI Research

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