Proxima* analyzed the impact of a 1% reduction in both labor and non-labor costs across 1,954 organizations.
Based on 2011 figures, if all the companies reduced labor costs by 1%, they should be able to raise EBITDA by 0.7% totalling $21 billion USD across the organizations. Addressing non-labor costs by 1%, however, would uplift EBITDA by 4.1% – almost 6 times greater (totaling $115 bn USD) and that’s without factoring in the implicit strategic and operational benefits.
With such large sums at stake, one area of particular concern is complex spend which accounts for a significant percentage of direct savings – money that companies of all sizes could be putting straight to their bottom line.
Yet many companies still report significant concerns when it comes to getting their complex category spend under control.
The top concerns reported include:
1. You don’t know how much you spend
You know you spend roughly 20% of your total expenditure on frequently ordered, low cost products and services, but you have no up to date or accurate data.
2. You don’t know who spends what
You know every department across your business is spending money, but you don’t have any information on who is spending what.
3. You don’t know how to control your spending
You have an e-procurement platform, but your employees persist in avoiding using it for low value transactions.
4. You don’t know what you buy
Your employees specify requirements on an order-by-order basis but you don’t know what they are specifying.
5. You don’t know who you buy from
You know you receive lots of invoices from lots of different suppliers but there is no central view of who your suppliers are.
6. You don’t know if you’re getting value for money
You uncover examples where your employees have bought at a premium price, but you don’t know how competitively your employees are buying.
7. You’ve negotiated preferred supplier contracts, but they struggle to gain adoption
You’ve contracted with key suppliers, but they complain that the spend is lower than forecast. You can’t get your employees to use your selected suppliers. You’ve implemented a catalog of commonly ordered products and services but your employees still buy off contract.
8. You know there’s a problem but don’t have time to sort it out
Your time is spent focusing on the easier, more strategic categories of expenditure, but you’re under pressure to bring your complex spend under management.
9. You hold stocks of obsolete products
You find that you are paying to hold stock of out-dated or obsolete stocked products that were over-ordered and never called off.
10. Different parts of your business buy the same product from different suppliers at different prices
You have evidence that your employees have paid very different prices from different suppliers for the same product.
Does this sound familiar? Do you recognize your business situation? Do you stay awake at night trying to work through your options? Do you ask yourself: “Exactly what is the key to getting your complex spend under control?”
The answer lies in introducing a Web-based, pay-as-you-go solution into the purchasing process mix. Using a cloud-based system, frontline buyers are able to leverage both historical information, such as past delivery performance and product quality, and real-time value indicators such as current product costs and factors affecting price, enabling them to select the right vendor at the right price and for the appropriate quantity.
The sustainable savings that are directly and predominantly linked to cost-of-goods reductions should be the primary focus of any initiative. Because Web-based spend management solutions are better able to address complex spend issues, they are the effective means by which double-digit savings can be realized, ensuring that organizations have a real-time dashboard for fast deployment and decision-making; ensuring that organizations achieve best value when acquiring materials and supplies – the right materials, from the right supplier, at the right place and the right time.
* Source: http://cdn2.hubspot.net/hub/28326/file-294650841-pdf/docs/Proxima_Whitepaper_Corporate_Virtualization.pdf?submissionGuid=2ec49085-e255-49cf-9bee-c9db740e0c62
Proxima is a client of Claritum.
Contact Claritum today if you would like to discuss options on how to get your complex category spend under control.