Firms fail to capitalise on strategic sourcing

21 April 2010

21 April 2010 | Allie Anderson

US companies are not making the most of strategic sourcing practices to save them money, research by Aberdeen Group has found.

Strategic Sourcing: The 2010 Guide to Driving Savings and Procurement Performance polled 400 US organisations currently using strategic sourcing and identified failure to standardise processes, inadequate contract lifecycle management and lack of proper spend analysis among areas where businesses are not realising cost savings.

Pressure to reduce costs was cited by more respondents (78 per cent) than any other as a reason behind their strategic sourcing decisions. The need to improve internal contract compliance was a driver for 25 per cent of companies, as was the need to develop or improve category management strategies. Improved external compliance issues were cited by 24 per cent.

Aberdeen compared the best and worst performing firms – measured by the amount of spend managed by the procurement department and the percentage of cost savings made in 2009  – to establish what lessons can be learnt.

At the worst performing companies, only 39 per cent of spend was controlled by procurement and just 1 per cent of potential cost savings were fully realised. The “best in class” firms, however, reported 71 per cent of spend under procurement’s control and 10 per cent of realised cost savings.

They achieved this by employing two main strategies. The first was to establish formal strategic sourcing measures across the company (52 per cent of "best in class" firms had done this, compared with 45 per cent of all others). The second was to adopt technologies, including e-sourcing, automated spend analysis and electronic RFP systems, to improve visibility and accuracy of spend data (47 per cent of “best in class” firms compared with 34 per cent of others).

Efficient management of contracts for their entire lifecycle was also highlighted as an area for improvement. Only 37 per cent of the worst performing companies do this. If implemented properly to incorporate monitoring of key contract milestones, inclusion of proper terms and conditions and breakdown of data, this could ensure better spend analysis and increase realised cost savings, the research concluded.

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