Business costs soar when procurement is cut

The cost of third-party supplies rises dramatically when organisations cut their investment in professional purchasing and do not staff it appropriately, a new report suggests.

Procurement consultants Efficio says that while it is generally recognised that investing in procurement can result in big savings, it is less understood that when procurement is reorganised or personnel are redeployed, it can cause huge disruption to a business.

Efficio vice president, Juraj Priecel, insists it is important for businesses not to under-estimate the impact of reducing their focus on procurement.

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“When procurement professionals are no longer there to keep an eye on contracts, deal with suppliers day-to-day, renegotiate deals where necessary and monitor the supplier markets, cost increases will result as night follows day,” he said.

“There’s a lesson here for top management and decision-makers about the value of investing in procurement,” added Priecel.

Priecel says a major European manufacturing company suffered a 6% rise in costs across its indirect spend categories within months when several procurement personnel left.

He insists this is typical, as loss of procurement resources usually results in an increase in costs for the company of 6% to 10% for indirect categories and 2% to 5% for direct categories within 12-18 months.

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