19 April 2011 | Angeline Albert
An estimated €433 billion (£379 billion) is spent outside procurement departments’ approved routes at European companies, according to research.
Although 95 per cent of organisations have set up preferred supplier lists, just half of the 162 firms surveyed said they had adequate controls to ensure staff who buy use them. On average, there was only 66 per cent compliance to preferred supplier lists and 64 per cent compliance with contracted rates.
“The key to improving compliance is ensuring effective controls are in place to identify deviation from preferred supplier lists,” said the European Indirect Spend Management 2011 report by American Express and AT Kearney. “Whether manual or embedded in procurement systems, process gates are essential to flag maverick spend and re-channel it through preferred suppliers and contracted rates.”
The study, which looked at firms in 10 European countries, also found 40 per cent of companies believe they do not have enough detail about purchases on their ERP systems, such as price or product information, that would allow them to make the best buying decisions.
The four key reasons for this poor quality spend data were; poor compliance to procurement policy; not all transactions being captured on systems; organisations have multiple systems that do not integrate well; and the absence of all item level transaction details being shown. Just 42 per cent of businesses in the survey had all transactions on their systems and only 34 per cent possessed the data in sufficient detail.
Michael Flueck, assistant vice president at ABB Management Services, told researchers: “Capturing line item data is becoming more and more important to us, as we recognise that this data helps us to better understand our future cost drivers.”
The report recommended procurement teams share details on non-compliance uncovered from spend data. It also suggested simplifying end-to-end processes rather than purely automating systems.