Reducing supplier costs should be ‘strategic priority’

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Reducing supplier costs would boost earnings of FTSE 350 companies more effectively than cutting jobs, a study has found.

According to The State of Spend 2020 report, published today, FTSE 350 companies would see an average 27% increase in EBITDA from a 10% cut in supplier spend. This compares to a 12% EBITDA increase resulting from a 10% drop in workforce costs.

The research, which was carried out by consultancy Proxima and the Centre for Economics and Business Research, found that average supplier costs make up 70% of FTSE 350 companies’ total spend and 60% of turnover.

Gareth Evans, chief executive of Proxima, said: “Our research demonstrates the crucial importance of managing external supplier costs. At a time when many FTSE 350 companies have been buffeted by the impact of Covid-19 and are making tough choices about jobs, this shows that they should be treating supplier cost management as a strategic priority.

“Business leaders should be looking to supplier costs as a primary source of saving money and increasing flexibility. At a time when companies are seeking to reduce outgoings and create a more variable cost base – supplier costs are where the biggest impacts can be made.”

“That 70% of FTSE 350 companies spending now goes on suppliers should also be food for thought for C-Suite executives looking for growth. How can that 70% be spent more efficiently to foster greater innovation? And with supplier spending so high, how can risks be appropriately managed and mitigated?”

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