Buyers at biggest firms failing to cut costs

25 August 2009

26 August 2009 | Jake Kanter

Purchasers are failing to cut costs at some of the world's largest companies, Hackett Group research has found.

The consultancy analysed the first and second quarter financial results of 700 of the 1,000 biggest global public companies. It found only one in four were able to slash the cost of functions - including procurement and IT - at the same rate as the reductions in their revenue during the recession.

Hackett said the companies saw revenues drop 23.7 per cent, but they were only able to cut "selling, general and administrative" costs by 6.7 per cent. This includes external spend on goods and service as well as internal staff overheads.

Businesses with revenues of more than $26 billion (£16 billion) are missing out on annual savings of $1 billion (£617 million) as a result of a "lack of agility" on such costs, the consultancy added.

The findings may come as a surprise to many CFOs and procurement chiefs, who have prioritised deep cost-cutting programmes this year (Web news, 21 July 2009).

Michel Janssen, chief research officer at Hackett, said: "Despite lots of tough talk about freezing discretionary spending and making across-the-board cuts, most companies appear to have failed in their efforts to manage their general and administrative cost structures."

Hackett added that companies must renegotiate contracts with suppliers and rethink outsourcing strategies to cut costs. Centralising spend and introducing global contracts could also help with savings efforts, it said.


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