Global manufacturers still not on top of purchasing

Large corporations across Europe and the US are still not tapping the opportunities of e-procurement, leaving billions on the table, according to the annual Global Spend Agenda survey by the London Business School and spend management software and services firm Ariba. On compliance, for example, the survey finds that two thirds of suppliers are still working outside negotiated contracts, leaving an average five to 10% potential savings unrealised. Given the continuing pressure to cut suppliers – 56% plan to reduce their supply base during 2006 – and costs from remaining suppliers – 91% say they’ll do that – the drivers for systems that can manage all that more effectively are clear. “Every year, purchasing departments are presented with the challenge of reducing costs, forcing them deeper into the organisation to realise savings,” says Ariba marketing director Paul Hampton. “Leveraging sourcing technologies and services to automate and enhance the procurement process, many companies have been able to identify savings. But in order to drive them to the bottom line, companies must design and execute spend management strategies that concentrate on … compliance and measurement.” “Commercial success is increasingly being defined in large organisations by their spend management strategy,” says Adrian Done, Doctoral Fellow at London Business School. “The corporate thirst for cost cutting shows little sign of being quenched. [But] despite the pursuit of spend excellence, it appears that many businesses are a long way from responding to this need effectively. “What we’re seeing is the emergence of best practice companies that are ahead of the curve – they’re more bullish, set better targets and have more enthusiasm. They’re pushing purchasing further up the business agenda. But there’s still a long way to go and big savings to be made. “It should be intuitively obvious – you can only go so far you by screwing the same old issues with the same old suppliers who at some point may just roll over and give up. What bites you then is decreasing quality and on time in full delivery performance. Companies have to be innovative and extend the scope of their spend management.”