Effective procurement blocked by internal resistance

10 January 2013

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10 January 2013 | Anna Reynolds

Internal resistance to procurement is damaging corporate growth, according to a survey of finance directors.

The survey based on responses from 100 finance leaders in UK and Ireland carried out by Expense Reduction Analysts (ERA) found 58 per cent of respondents said departments had resisted efforts to establish professional procurement practices, believing it would hinder the effectiveness of their function.

Fewer than half (46 per cent) of respondents said their company never discussed procurement at board level or only once a year. Some four out of five organisations don’t have a specialist procurement team or individual, while 52 per cent of finance directors felt employees suffered from a lack of time and experience when it comes to securing the best supplier deals. And only 21 per cent of directors viewed their suppliers as strategic partners.

It also revealed 77 per cent of companies only consider the short-term picture and immediately default to a defensive cost-cutting mentality when money is tight.

Rob Allison, managing director at ERA, said in a statement: “Businesses and government have responded to the economic downturn by implementing wide-ranging cost-cutting initiatives. Cutting costs may keep businesses afloat temporarily, but it won’t enable them to compete long-term.”

He added: “This illustrates a cultural issue which should be addressed – if nothing else, finance directors must be equipped with procurement knowledge and the appropriate skill set. Ultimately, finance should drive and influence procurement, enabling businesses to free up cash, drive growth and deliver more sustainable and profitable smarter spending habits.”

ERA recommended organisations ensure all staff adopt a smarter spending psychology and link this to performance management. In addition, it is essential that internal and external reporting on spend provides accurate measurements for the finance director to provide guidance for future procurement strategies. Regular evaluations of the supply chain and closer relationships between staff and suppliers were also highlighted as important.

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