UK companies are ‘wasting’ £65 billion

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UK businesses could save more than £65 billion of the £350bn spent each year on non-core goods and services through better supplier relationships and managed costs,  according to procurement specialist buyingTeam.

Using data from over a decade of managing expenditure for large, international corporations, buyingTeam calculates an overspend of £65bn on these systems or services that are needed to run a company, but are not sold on by the company.

And it reckons that for FTSE 250 manufacturing companies collective cash spend was over £18bn in 2008. Some £6bn of that was allocated to purchase of indirect goods and services, and improving supplier relationships could have saved over £1.06bn.

“It is amazing that, despite the current economic retraction and the daily reality of redundancies, organisations can still be so unclear as to what exactly they are spending their increasingly hard to earn capital on,” said Guy Strafford, client services director, buyingTeam.

“We estimate that mismanaged expenditure adds up to around £65 bn in wasted outlay per annum for UK plc. When cash flow is tight and financing difficult to find, now is definitely the time to review all potential waste, especially as we’re really seeing contraction in fees and expecting a drop of 14-18 per cent in IT costs in 2009.”

Shirley Cooper, procurement & supply chain director of Computacenter (UK) said: “At first sight, indirect spend seems unimportant and not ‘worthy’ of so much time and attention,” says “However, when we saw the figures and realised how much we could take off our annual outgoings, we were amazed. Over the last few months, we’ve saved £millions just by reviewing our indirect spend and improving our internal processes to ensure better use and buying by all members of our company.”

buyingTeam has set out five points to keep in mind :

1. What gets measured, gets done: do you have a clear view of all company expenditure.

2. Economies of scale: see whether there are multiple suppliers for the same product or service.

3. Prices are dropping: check when the contracts with suppliers were last reviewed or renewed.

4. Some spend is unnecessary: ask how suppliers are used, are they needed?

5. Ensure close management of suppliers continues after the contract has started.

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