Firms need to better manage approved supplier spend says Ariba

Enterprise procurement software specialist Ariba last month released results of a joint European research study on how large European businesses intend to manage their corporate ‘shopping list’ in today’s tough economic climate. The survey involved interviewing 180 purchasing heads of large (£250 million and upwards) manufacturing and distribution companies across France, Germany and the UK. Dubbed ‘The Corporate Spend Agenda’, the report indicates that cost cutting is high on the Board’s agenda with firms not having a clear strategy when it comes to spend management. Jamie Anderson, programme director of the London Business School’s centre for management development, commented: “Without a strong strategic element, getting value from spend management software is difficult. In Germany, this message seems to be on the Board’s agenda. France appears to be the laggard here and the survey suggests the UK sits somewhere in between these two.” With around 50% of respondents reporting directly to the Board, the survey suggests the companies have no clear strategy on how to achieve procurement efficiencies. “The broad consensus is simply to reduce volumes or haggle over the unit cost of goods and services,” said John Watton, Ariba’s UK marketing director. “Most firms have poor visibility of total business spend making strategic planning impossible. But with procurement slowly being pushed up the boardroom agenda, firms need to look at the complete cycle of corporate spending, beyond unit costs to fully exploit potential savings.” Reducing bottom line cost is a clear priority for most firms. 60% of manufacturing firms surveyed said they had already cut, or planned to cut spending, in the first quarter of 2002. And 70.5% of manufacturers interviewed (120 in total out of the 180 businesses surveyed were either process or discrete manufacturers) said in the last three months they had re-negotiated contracts with their suppliers and were looking for an average reduction of 12% cost savings from this exercise. Once contracts have been re-negotiated and agreed, many respondents admitted their next biggest challenge was to ensure that departments across the business actually bought off those contracts. The survey also found that, on average, 35% of business spend is made ‘off contract’ with non-approved suppliers. Graham Opie, Vanson Bourne’s director, sums up: “The data gives a very balanced view of how companies are tackling their spend management across Europe… the point to make here is that prices and volume will ultimately reach a level where they can go no further and alternatives need to be found.”