Spend Control: The 'Biggest Bang for the Buck'

Charlotte Sutton
Charlotte Sutton,
In a tough economy, organisations are looking for new ways to increase shareholder value. Two headline choices prevail: grow top-line revenues or reduce operating costs.
If you do the maths it doesn't take long to realise which delivers the 'biggest bang for the buck':

Organisations spend nearly half of every pound earned on external goods and services and it takes a whooping 10% increase in revenue to have the same impact on the bottom line as just a 1% decrease in operating costs.

According to analysts, it also takes a 10% increase in revenue to deliver a 20% increase in EPS (Earnings per Share) whereas it only requires a 1% decrease in operating costs to have the same impact.

So, whichever way you look at it, opportunities exist to grow the bottom line without growing the top line. 

Spend Control delivers three types of 'cashable' savings:
  • Secured savings where favourable terms of purchase are acquired through changes in pricing, mix, or quality and increased contract compliance
  • Mitigated savings from delivering an ongoing program of cost and risk avoidance, and
  • Cash-releasing efficiencies where money is chosen to be released from efficiency gains
Spend Control also generates 'non-cash releasing' efficiency gains by improving the performance of available resources from best practice and business process improvements.

As a result, successful organisations are fast being characterised as those that view the Spend Control aspects of their business more strategically - constantly refining their processes and technologies to get better visibility into specific business issues:

  • Maverick, unauthorised purchases
  • Poor visibility of cost pipeline, difficulty in managing budgets
  • Payment of incorrect, duplicate, unauthorised invoices
  • High cost of the Accounts Payable process
  • Poor visibility of spend
  • Low level of 'spend under management'
  • Not consistently gaining best value from suppliers
  • Mitigating supplier risk
  • Managing tail-spend
  • Inconsistent, nor transparent sourcing process
  • High cost of supplier enablement
However, less than 20% of large corporations have yet to fully adopt and exploit the disciplines of Spend Control and eProcurement for cost savings and efficiency gains.

Organisations must move away from being opportunistic players in Spend Control - whereby they take point-based approaches to realise savings from the 'low-hanging fruit' or discrete efficiency programs - to a complete organisational realignment with proven best practices.

In addition, executives now more than ever should concern themselves with maintaining proper corporate governance due to the negative implications that improper governance has caused. 
Spend Control and eProcurement allows for greater control on corporate spending.

To learn more, download Spend Control & eProcurement: A Practical Guide to Identify Savings Opportunities.
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