“With the slow growth that we’ve seen globally, it’s no surprise that companies remain focused on managing costs in 2012,” said Carl Guarino, Chief Executive Officer of Procurian. “What’s unique about this data is that the majority of companies are focusing on their indirect costs, which is an area of spending that has been largely undermanaged in the past. As companies have exhausted other cost reductions such as layoffs or downsizing, they’ve started to look elsewhere for savings that can be used to improve margins or fund product innovation and growth, and have identified indirect spending as a significant source of savings.”
And while 70 percent looks like a large number, most companies do have indirect procurement that is just not generating value, Clary added. Fortune 1000 executives cite limited resources, large, disparate organizations and lack of information as reasons why managing indirect spending has been a challenge for them.
It’s no secret that the first step to improved spend management starts with taking an in-depth look at everything a company spends money on to better implement effective cost-cutting strategies.
“Invariably, we continue to see companies that have inched into areas of indirect but they haven’t done the basic analysis that answers the questions: ‘Who is it that we are spending money with? How long have we been doing business with these suppliers? When was the last time we aggressively benchmarked what it is we’re buying, what price we’re paying and what is the structure of our contracts?” Clary explained. “And really getting to the area of ‘is there a brand new supply chain strategy we should put in place to manage this area of spending?’”
Procurian used the survey’s findings and insights to define an advanced approach and operating model called The New Procurement, which calls for a fundamental shift in the way companies manage spending—particularly indirect spending. This philosophy serves as the foundation for “The New Procurement Manifesto,” Procurian’s definition of the new operating model.
“For our clients, and the market at large, The New Procurement is no longer an option—it’s an operational necessity to unlock savings in order to drive innovation and fuel growth,” said Guarino. “The results of this survey, coupled with our findings from collaborating with our Fortune 1000 customers, make it clear that now is the time for business leaders to transform the way their organizations view indirect spending. In today’s business environment, they must find ways to maximize the business impact of every dollar spent and finally capture the hundreds of millions of dollars being left on the table.”
The New Procurement Manifesto identifies six underlying principles of this new standard of excellence:
- Procurement should address 100 percent of spend globally
- Procurement must support sustainability and corporate social responsibility objectives
- Procurement must apply real-time market intelligence
- Procurement must deliver realized savings and continuously optimize spend
- Procurement must enable agility and mitigate risk
- Procurement must actively identify and deliver new sources of savings and innovation to fuel growth
“Right now you have companies that I think haven’t been as effective at spend management but are growing and are really focusing more on the sustainability and risk mitigation elements of the manifesto,” said Clary. “And we have others that are truly in need of some way of funding growth and that’s the 100 percent of spend—owning and realizing savings and fueling growth elements that are most important to them.”
While goals in cost cutting and spend management may differ for each company, Procurian cites an approximate nine months for a business to see a valid return on investment including a good knowledge of the spend; a series of cross-functional teams that are addressing spend aggressively in a way that has not been done in the past; and a series of programs launched, such as in the areas of active energy management or supplier development initiatives that yield company savings within that nine-month time frame. And whether a company chooses to invest in their own type of organization to cut costs and manage their spend or hire a firm like Procurian, 12 to 14 months is the approximate time frame for a company to start generating significant dollars to better fund growth.