Procurement Tech Delivers - InformationWeek

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Procurement Tech Delivers

They're the kind of cost-savings numbers that catch one's attention: $160 million in 2003 and another $100 million last year. That's how much Agilent Technologies Inc. says it saved in indirect procurement--buying materials not used to build its scientific-instrument products--since spending tens of millions of dollars the past three years on procurement modules for its Oracle enterprise-resource-planning system and reengineering the purchasing process.

With 2004 sales of $7.2 billion, Agilent is what consulting group the Hackett Group characterizes as a world-class company when it comes to procurement operations. Hackett, a consulting firm known for its benchmarking studies, said in a report last week that world-class companies--those it ranks in the top quarter in procurement effectiveness--spend 27% more than their peers on procurement technology. In turn, these companies spend 27% less than typical companies on total procurement operations. Simply put, Hackett concludes that the best-run companies spend more on procurement technology and get more from it.

For each $1 billion spent on procurement, Hackett says, world-class companies invest an average of $1.4 million on procurement technology, compared with $1.1 million for typical businesses. Few back-office functions have had more dramatic impact on technology this past decade than procurement, says Christopher Sawchuk, a Hackett senior business adviser.

Agilent simplified procurement by adopting a tech standard that lets a seller create its own invoice for purchased products, which makes verifying receipt of an order simpler. "It allows us to cut down one more step in the procurement process," says Anita Manwani, Agilent's VP and general manager of global sourcing. Increased visibility also let it leverage its buying power. But it's a difficult process. "This has been a challenging process," Manwani says. "It's not an exercise you do every two years. It involves lots of investment and discipline to manage such a return on investment."

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