Double-digit Cost Savings with Procurement Outsourcing

New Aberdeen report reveals procurement outsourcing used by more than 40 percent of enterprises; further investment planned

New Aberdeen report reveals procurement outsourcing used by more than 40 percent of enterprises; further investment planned

Boston — April 13, 2004 — Corporations that have implemented procurement outsourcing services have recognized rapid and measurable reduction in their cost structures and have improved overall operational efficiencies, according to Aberdeen Group, a research and consulting firm serving Global 5000 enterprises.

"The recent economic downturn has reinforced the need for enterprises to control costs and maximize performance," said Tim Minahan, vice president of Supply Chain Research at Aberdeen Group and author of the report. "Lacking the skills, expertise and infrastructure to effectively mange procurement across all spending categories, many enterprises have turned to procurement outsourcing and, as a result, are recognizing significant benefits."

The report, "The Procurement Outsourcing Benchmarking Report," is based on a survey of more than 750 senior procurement, supply chain and financial executives. It found that 43 percent of enterprises currently outsource select procurement processes or spend categories, with outsourcing most prevalent among larger enterprises that outsource other functions.

Another 15 percent of enterprises plan to outsource procurement within the next three years. Most outsourcing relationships have focused on non-production spending categories. However, returns from these initiatives have been significant.

On average, enterprises outsourcing procurement reported the following benefits:

* Reduced prices paid for goods and services by 18 percent
* Improved contract compliance by 60 percent
* Cut sourcing and procurement cycles in half
* Reduced procurement administration and automation costs by more than 25 percent

Additional benefits achieved include reduced headcount, improved capture of rebates and volume discounts, and enhanced internal procurement skills through category and process knowledge transfer.

"The value derived from procurement outsourcing is determined largely by the structure and maturity of an enterprise's procurement operating model, not its industry or company size," continued Minahan.

"The Procurement Outsourcing Benchmark Report" is designed to help business executives assess the maturity and competency of their procurement-operating model and identify how procurement outsourcing may help. Minahan said the report also provides actionable strategies to determine the right outsourcing approach for an enterprise and how best to manage procurement outsourcing relationships to maximize and sustain total cost savings.