Sunday, 20 January 2013

Tapping into the Spend Opportunity: What is it? (Part 1)

What is your spend opportunity? When you take into account that supplier spend can represent from 40-80% of revenue (dependent upon industry and organisation), and that indirect spend is a large portion of supplier spend (at least 55% for non-manufacturing companies and as high as 50% for manufacturing organisations), the opportunity for Strategic Sourcing Centres of Excellence to capitalise on all types of spend is extreme. And for those looking for quick win, a laser focus on only indirect spend can bring vast rewards.

So why aren’t more companies reaping the spend benefit? It’s simple: complexity. Spend is spread across the organisation into many varied divisions and business units. Direct spend is typically reviewed as part of a product with the focus on product development, product release and maintenance of products. Most companies producing products have very tightly controlled releases and reviews tied to their cost of goods sold (COGS). And while this is great by division and business unit, it isn’t when viewed across the entire company. In many cases, the same suppliers are utilised by many of the divisions and business units, however emphasis is not placed on leveraging the opportunity of volume, intellectual property, risk or supplier value.

Indirect spend is typically tied to budgets and because it is so dispersed, spend appears insignificant when in fact it is most likely an opportunity to capitalise. In addition, indirect spend is tied to stakeholders who control their own budget and want to make their own decisions so as to control their outcome — including personal agendas and politics.

But just a focus on spend won’t get you far, you still need an organisation that can look at it holistically, a tool and processes that enable spend visibility across the organisation and then a strategy to capitalise on the opportunities. More on this subject in Part 2, tomorrow.

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