Average procurement budget runs 7% annual surplus, Proactis reveals

02 January 2021 - Proactis, the spend management experts, revealed that analysis shows over one in ten procurement exercises don’t yield contracts, and that 80% of total value of average contract is actually drawn down in the financial year.

Procurement teams typically run a surplus of around 7% of their annual budget, according to analysis of over 3,200 procurement exercises worth over $250 million by spend management experts Proactis.

The new findings reveal that the average procurement exercise yields contracts worth 93% of the original budget allocated. Over one in ten procurement processes (13%) don’t yield contracts at all.

The Proactis analysis suggests a valuable ‘secondary surplus’ now exists within procurement teams, which are increasingly tasked with driving cost reductions and adding strategic value to organizations.

Surplus budgets are likely to be reallocated to the OPEX budget of the department involved but could be set aside to cover overspend or unanticipated costs elsewhere.  However, in some cases procurement teams are now being rewarded for the savings they can generate by intervening in the Source-to-Contract process.

Paul Massey Product Director at Proactis, said: “Procurement teams are under pressure to deliver results in an increasingly complicated landscape. Even though indirect spend has been gradually increasing, many do not give it the attention it deserves, despite the clear opportunities that exist to manage down spend, protect cash flow and support investment.”

The Proactis research also revealed that only 80% of the total annual value of the contracts agreed is actually drawn down in the financial year, meaning a fifth of allocated budget remains unspent by year end.

Paul Massey added: “Our findings highlight just how much variation and opportunity exists within the Source-to-Contract cycle. From the processes that do not even yield contracts to the extent to which budgets are actually used by the end of the financial year, there are many interventions that procurement teams might propose to add strategic value.

“While the drivers affecting decision making will differ between teams, much can be determined by company strategy. Do you want to preserve cash balances and be prudent or can you identify opportunities to invest in the business? This is a prime example of why procurement leaders and finance leaders will benefit from close collaboration.”