Running the Numbers - June/July 2005

The latest facts, figures and benchmarking data in the procurement/payment, supply chain management, sourcing/logistics, and the supply chain integration & technology infrastructure markets


Procurement/Payment

A survey of 50 government officials from 13 markets around the world found that 68 percent cite automation as their key priority, and they also believe that there is further opportunity for improving their procure-to-pay process.

Additional results of the survey, which was conducted by card issuer Visa, showed that:

  • 22 percent of government officials expect that improving process automation will be the most important benefit their organization will derive from implementing a commercial card program, followed by replacing cash (18 percent) and increasing procurement transparency (18 percent).
  • 82 percent of respondents report that their organization has implemented policies that aim to provide greater opportunities for small businesses to work with the government. Of those organizations that have not implemented a small business policy, 78 percent believe that small and midsize businesses will become a focus within the next five years.
  • 35 percent of government organizations plan to implement new technologies in the next five years, followed by outsourcing functions (31 percent) and new organization-wide processes (30 percent).

Source: Visa, 2005

Supply Chain Management

Companies continue to make outsourcing decisions that are driven by cost reduction and the desire to focus on their core operations, rather than pursuing outsourcing in order to drive more revenue and seize competitive advantage, according to a new study released by CAPS, the Center for Strategic Supply Research, and management consulting firm A.T. Kearney.

More than 80 percent of companies polled said that reduced operating costs, reduced capital investment and the need to focus on their core business were the primary reasons for their outsourcing activities. Fewer than half of the companies cited reasons related to revenue growth, such as increased speed to market (46 percent), improved quality (42 percent) and faster customer response time (40 percent).

The majority of companies with cost-related goals for outsourcing said they met or exceeded those goals. The average cost savings for these companies was 13 percent, but more than one-third reported savings greater than 15 percent. In contrast, the majority of companies with revenue-related goals for outsourcing reported falling short of those goals.

"It's clear there are two different approaches to outsourcing at work," said Bill Markham, a principal with A.T. Kearney and co-leader of the study. "Companies seeking quick savings focus their efforts on finding less-expensive alternatives to operating their business today. Companies focused on tomorrow's business needs are seeking more significant long-term benefits and looking to leverage marketplace skills, technologies and scale to cut costs and increase revenue."

The report suggests companies define from the outset whether the strategic intent of their outsourcing efforts is cost reduction or revenue generation. It also recommends the following steps to give companies an edge in achieving their outsourcing goals:

  • Anticipate shifts in the future business environment, and consider the effect these shifts would have on future outsourcing activities.
  • Build tomorrow's corporation by seeking skills, technologies and scale from the marketplace rather than assuming that these capabilities must be developed internally.
  • Address the execution issues inherent in any outsourcing activity by clearly defining roles and responsibilities across the corporate functions involved.

Source: CAPS, A.T. Kearney

Sourcing/Logistics

An Aberdeen Group study of 170 companies found that 91 percent feel pressured to make changes to their global trade process because: 1) lead times inhibit their ability to respond to market demands, and 2) expected product cost savings are eroded by unanticipated global supply chain costs. The top driver is finding ways to make global supply chains more responsive to changes in customer demand and shifts in market dynamics.

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