Procurement organizations are reportedly wasting billions each year due to inefficient practices. U.K. companies, specifically, are losing $79.5 billion a year, according to research from blur Group, a cloud software and managed services solution provider. That’s nearly $218 million wasted each day due to what blur Group called procurement fraud, unmanaged contracts, maverick spending and inefficient internal management and delivery processes.
This information is especially pertinent given the concerns over the recent Brexit vote and its potential impacts on U.K.’s economy and domestic companies’ bottom lines. According to blur Group CEO Philip Letts, the main issue for CEOs and CFOs post-Brexit is cost reduction and cash optimization, yet many of these organizations are wasting money each year.
“Brexit is the new reality, with volatile markets, profit warnings from major players in key sectors and a rapid tightening of investment,” he said, adding that it is “imperative” for companies to begin to properly tackle spend management.
Letts also said before companies consider reducing staff, reducing investment or halting projects in an attempt to cut costs, they must take a look at their current practices and identify inefficient procurement processes within the business.
Global Procurement Waste Much Larger
When it comes to indirect procurement waste among global enterprises (not just in the U.K.), the amount is much higher — blur Group estimates as much as $2.28 trillion is wasted due to inefficient indirect procurement processes. And, it’s not just money procurement organizations could save by improvement processes, but time.
“Estimates indicate that improved procurement functions can save 158 hours per user per year,” blur Group wrote in a recent report. “In North America alone, this inefficiency equates to 32.3 million hours – or $1.5 billion – of wasted time.”
Poor indirect spend management is something Spend Matters has reported on before. And as Jason Busch, founder and head of strategy for Spend Matters, wrote back in February 2015, “to truly manage indirect spend, we must fully understand it first.”
“Without understanding all elements of our spending, there’s a strong chance that we’ll lose opportunities to create savings or other forms of value (e.g., inventory reduction) from it past a certain level,” Busch wrote, before offering a number of considerations procurement organizations must take to determine how to improve indirect spend processes.
Improvements and Savings
Research shows by improving spend management processes, companies can see significant savings. As pointed out in blur Group’s research report “Identifying and Overcoming Procurement Waste,” a company that brings in $5 billion in revenue but does not have a spend analysis program implemented are overpaying about $11 million to procure goods and services annually. AMR Research also said businesses without a spend analytics program regularly miss 10% to 15% in savings.