Case Study: Targeting of £500k+ Per Annum Cost Savings

Charlotte Sutton
Charlotte Sutton,
PROACTIS was commissioned by a public sector organisation to undertake a rapid consultation and spend review to identify opportunities for cost savings and efficiency gains.
PROACTIS was commissioned by a public sector organisation to undertake a rapid consultation and spend review to identify opportunities for cost savings and efficiency gains.

For the first phase, in excess of £566,000 savings per annum were identified (in isolation to process efficiencies) and a set of action-orientated recommendations put in place.

The analysis was restricted to:

A high level detail of what goods and services are bought, by whom, from where Suppliers providing similar goods or services and potential for consolidation/ rationalisation The volume of invoices per supplier, highlighting areas for reduction Off-contract spend volumes and purchasing policy adherence Identification of critical goods and services Electronic trading capabilities of suppliers and lead times

Summary of Findings – Volume & Value of Invoice Transactions

Profile of Invoices by Supplier:

The organisations expenditure exceeded £60million, represented by 54,000 invoices from 3,800 supplier accounts. High level analysis indicated that the top 20 suppliers in terms of spend, accounted for almost half of all expenditure, yet accounted for only 8.2% of invoices.

The profile of invoices by expenditure value increased significantly for invoices in excess of £1k. In fact, invoices with a value between £1k-£250k accounted for 81% of all expenditure. In contrast, invoices by volume indicated that 79% of all invoices were for less than £500. This demonstrates a significant opportunity for cost savings.

Low Value, High Volume Invoices:

Invoices less than £99 account for 2% of total invoice value however result in 48% of all invoice volume. This indicates the public sector organisation is often spending more on processing invoices than the actual value of the invoice itself.

Further analysis highlights that the top 10 suppliers account for 33% of invoices less than £100 with 3 suppliers accounting for 16% between them. By targeting, as a priority, these suppliers for electronic invoicing cost savings of up to £96k for low value invoices alone could be achieved.

Additional cost savings could be realised by adopting mechanisms for electronic communication, such as Supplier Punch Out, Purchase Order Flip, Document Scanning and eInvoicing.

If complete electronic mechanisms (ordering, catalogues and invoicing) were combined this would generate costs savings of up to £210k for these suppliers.

Overall, if the 20 suppliers utilised electronic “end-to-end” means for Purchasing, there is a cost saving of up to £566k.

Purchasing Policy Adherence:

The public sector organisation acknowledged difficulties in purchasing policy adherence amongst employees and the associated impact on its potential buying power.

Transaction data confirmed a relaxed buying culture with 17%, nearly £10million, of expenditure, being identified as outside of contract agreements. Potential savings could be created by transferring spend to current contracts and further price reductions and discounts negotiated.

Whilst there were many more cost and process efficiency savings identified this example demonstrates how to identify the most important issues procurement teams should address, without needing to undertake an overly complex data management project.

The next step for the organisation is to implement the recommendations and ultimately a Spend Control framework that can provide effective management and oversight of spend.

Sounds familiar? Use the PROACTIS online “Spend Control Assessment Toolkit” to identify how well your organisation is performing in key areas? Start now.