Looking for indirect savings?

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As companies keep a very close eye on suppliers – looking for signs of fragility, vulnerability and risk – taking cost out of the supply chain remains a delicate process that needs careful analysis and ultimately, perfect balance.

The first step, elusive to many, is to determine who the critical suppliers actually are. This may be harder than it looks, as a small specialist supplier of an outwardly insignificant component or service can be difficult to spot. Larger, key suppliers may be more obvious, but once a rating system has been established, careful analysis of a key supplier’s financial performance needs to be maintained. Attention to cashflow, profitability, ownership structure and customer base are essential.

Any changes in payment terms or alternation in service levels may well offer an early indication that a supplier is under financial stress. It’s well worth encouraging vital suppliers to talk openly, and to build trust, as it may become necessary to help such suppliers through more relaxed payment terms or even closer financial arrangements. For suppliers where alternative sources of supply can be found, balancing risk through duel supply would be sensible.

In the present climate, taking cost out of direct procurement may not be that easy, for all the dangers already alluded to. But, taking cost out of indirect procurement may present greater opportunities.

According to research carried out by buyingTeam, UK businesses spend over £350bn per year on non-core goods and services and that over £65bn per year could be saved through better supplier relationships and managed costs. Shirley Cooper, procurement and supply chain director at Computacenter (UK) says: “Over the last few months, we’ve saved millions of pounds just by reviewing our indirect spend and improving our internal processes to ensure better use and buying by all members of our company.”

Indirect procurement could offer some easy pickings, but then as always, companies first need to have a clear view of all company expenditure. And that’s the difficult bit.

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