Poor price visibility leads firms to overspend

2 September 2010

2 September 2010 | Angeline Albert 

Manufacturers, distributors and retailers will overspend by $415 billion (£270 billion) this year on transportation, technology, telecoms and energy, according to spend management consultancy NPI.

Poor visibility of pricing benchmarks has contributed to overspending, the research found, based on trends in manufacturing, retail, industrial and other supply chain-focused companies across the world. It also analysed pricing data from top suppliers in each of the four spend categories.

“These are areas where there is little visibility of benchmarks for pricing and terms. It’s easy for even the most advanced purchasing groups to be vulnerable to overpayment and suboptimal terms,” said John Haber, executive vice-president of supply chain spend management practice at NPI. “As we see investment in these categories increase, overspending in these areas will increase correspondingly.”

It estimates that supply chain-focused firms will overspend $124.5 billion (£80 billion) on shipping and logistics services in 2010. This is because, on average, they overpay 12-15 per cent on fuel surcharges, while large shipping organisations are overspending 25-30 per cent on overnight shipments. 

Poor pricing visibility has also led to firms to pay too much for warehouse management system (WMS) software. Those who do benchmark the cost of these systems have been able to reduce prices by as much as 27 per cent this year.

NPI said the companies it looked at would also overspend on energy and utilities by $83 billion (£54 billion) this year. This is because they often fail to conduct a detailed assessment of tariffs, which results in uncompetitive rate plans and overpaying by up to 30 per cent.

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