How to avoid Procurement Waste – The expensive drain on business.
There is a simple change that businesses can make that could save them trilllions of pounds.
Research published by global enterprise platform Blur Group Plc, Identifying and Overcoming Procurement Waste, http://bit.ly/2dwR1ql identified that the global cost of indirect procurement waste due to inefficient processes and wasteful purchasing behaviour was costing businesses around 1.6 trillion pounds a year. That’s a lot of waste.
They urge managers to be more aware and active in controlling their procurement and supply chain spending to reduce waste. The report found that overspending on procurement fraud, unmanaged contracts, uncontrolled spending and lax internal management and delivery processes is costing companies more than the GDP of the UK, the fifth biggest economy in the world.
“Indirect spend is the last great wilderness of financial possibility,” said Philip Letts, CEO of Blur Group. “The scale of procurement waste is huge and indirect spend is the area we’ve identified with the most potential to achieve immediate and long-term sustainable efficiencies and savings for a business.”
Procurement of business services is particularly susceptible to waste. Although this part of indirect spend covers a variety of categories, research revealed that the top barriers to effectively managing procurement waste included poor communications, planning, data, processes and oversight.
However, the report shows that managers can regain control of their procurement costs and make substantial savings for their companies, of up to 5% of indirect spend or up to 3% of overall spend, without resorting to traditional methods of controlling costs, such as reducing staffing requirements or eliminating opportunities for innovation. Ramsay Todd Consulting can guide you through and advise on the best way to reduce procurement waste without necessarily reducing staff
Philip Letts added: “We know that CEOs’ top priority in 2016 is cost reduction and we know that procurement waste is a factor for every enterprise, whether they choose to recognise and tackle the issue or not. Whether it’s to prepare for impending economic difficulties or to improve overall profitability, cost reductions are an essential concern for every executive. I firmly believe that an effective cost reduction programme must start by focusing on the elimination of procurement waste. Indirect spend should be the first area of focus”.
“The reality is, in times of economic uncertainty, it has been easier for organisations to implement cost-cutting strategies that involve staff reductions and impose limits on strategic spend. A blind eye has been cast on indirect spend procurement which is fragmented across multiple budget holders.
This kind of purchasing, often for bespoke services, is delicate – it’s less controlled, less systemised, and not as transparent. No business likes to admit to internal inefficiencies, but leading companies are now looking at their indirect spend and the purchasing behaviours within it, and seeing that process efficiency and elimination of waste is achievable through accessible cloud technology and managed services.”
Contact Ramsay Todd Consulting to learn how to make informed change within your current procurement processes, to reduce waste and maximize your ROI.