Why organizations are failing to gain control over expenditure

Published September 2014

Organizations are failing to gain control over expenditure. $2tn is the figure estimated to be spent on complex categories by organizations, representing 1-3% of their turnover. Figures indicate that organizations could save at least 15-40% savings by bringing spend under management, yet fail to do so.

The respected organization, "Procurement Leaders" estimates that savings of 30-40% are not unrealistic, yet still companies fail to do anything to gain control. The reasons are varied but include the fact that it is easier for Chief Procurement Officers to go for 'quick wins' or to outsource spend to marketing and print management agencies. It's just all too difficult to tackle, or is it?

Firstly, you need to do an audit, this includes asking simple questions such as who is purchasing, what is being purchased, how is it being purchased, how much is being spent, how much is being purchased and from whom, and where are the opportunities for efficiencies and cost savings.

Items being purchased range from Marketing services, print, uniforms & apparel, signage, exhibition & display, packaging and point of sale, gifts and premiums, and office supplies.

Some brief examples of organizations surveyed show:

A senior buyer of a major UK retailer who said: "We were managing £80m of spend per year. But we knew we had a problem when Finance reviewed the group-wide purchase ledger and identified a further £70m."

A Category Manager, Print & Paper, Financial Services, who said: "It was only when we came to renew the supplier's contract that we uncovered US$40m of redundant stock sitting in their warehouse. We had single sourced to a manufacturer who appeared to give us good prices, so we ordered more than we needed to get the volume discounts. No one in our organization knew what we were paying because no one had an over view of what was going on."

Without a deeper understanding of the category or expenditure and with 'easier' categories elsewhere, businesses will continue to ignore this significant savings opportunity. These categories often represent frequently ordered, low cost items, having high ordering costs relative to product value, demand is unpredictable, dispersed through the organization and goods can be supplied by multiple specialist suppliers.

In order to survive in today's markets, organizations must face the challenges of getting these complex expenses under management and realize the associated costs savings and process benefits.

It is challenging but worth the effort.