Defying Commercial Logic - A Question of Priorities
Recently, I have noticed that in certain industries, the accepted norm contradicts logic. Large businesses have an opportunity sitting within their businesses to improve their bottom line through better management of costs. But to date the accepted norm is to not take advantage of procurement.
A big unexpected win for many retailers this quarter was that retail sales volumes (excluding petrol) increased 0.7% between August and September. The FT recently reported that "Contrary to popular wisdom, consumers are spending money". However, the surge in inflation (coming in at 5.2%) and rising utility costs means that many retailers are still struggling to turn these volumes into cash at the bank. Couple this with the Bank of England downgrading growth forecasts 'close to zero' for the rest of the year - the initial rosy picture seems to now lose a lot of its lustre.
In parallel the Institute of International Finance (IIF) has found that investment banks are guaranteeing bonuses to employees "regardless of their performance" - despite coming under heavy fire from the public and various industry analysts / associations (e.g. the occupy Wall Street protesters).
What I am trying point out by comparing these two disparate industries and situations is that it's curious how in certain situations, the accepted norm contradicts logic. Large businesses, and particularly retailers, have a large opportunity sitting within their businesses to improve their bottom line through better management of costs. Likewise, businesses could put pressure on investment banks and introduce the idea of value for money. But to date the accepted norm is to not take advantage of procurement. Greater scrutiny of business expenditure should without question be on senior executive's agendas, next to increasing sales volumes – but why isn't it?
- Most large corporates lack visibility of their spending activity. And yet indirect expenditure typically ranges from 30% to 80% of total supplier expenditure, depending on the industry.
- Our latest research found that "53% of Senior Executives expressed low satisfaction in regards to the value procurement brought to their organisation". And yet they do nothing about it - or perhaps believe there is nothing that can be done about it.
This defies commercial logic. So a burning platform and the creation of urgency is needed to encourage senior executives to proactively sit up and take notice.
I would be very interested to hear your ideas for creating burning platforms in your businesses/ industries. How might Procurement better communicate with the business? What do think might resonate with your senior management team?
(The above is an excerpt from our recent e-newsletter. View the complete e-newsletter here)