Expert: Rob Allison

Company: Expense Reduction Analysts (ERA)

Background: Managing director of ERA, a network of procurement consultants

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Many employees don’t understand the value of managing the purse strings. According to a report commissioned by the Expense Reduction Analysts (ERA) of 516 business people:

• 49% don’t know if their business has a purchasing process, have no process or do their own thing when managing a supplier tender
• 65% of junior management are able to make some or all purchasing decisions with no approval from senior employees
• 56% rarely speak with suppliers, don’t trust them, or only speak with them if there is a problem
• 59% of businesses will not review suppliers unless there is a problem
• 60% of companies said a need to cut costs triggers a supplier review
• Nearly 50% just use the previous price without any detailed analysis to benchmark suppliers
• 25% of respondents say if it were their own money, they would be far more careful with it
• 64% of sole purchasers have had no formal purchasing training

A complete culture, attitude and organisation shift is required for companies to see operational efficiencies and increased profitability.

And more value must be attributed to long-term smarter spending across the entire supply chain if businesses are to find growth in the future.

Some top tips for smarter spending

1. Implement company-wide supply chain guidelines

These should include clear company processes and policies for employees and for reviewing suppliers.

2. Develop and enforce an integrated approach to purchasing decisions

Present quarterly supplier reviews. These should not just focus on cost reduction but metrics such as quality control, supplier relationship and company reputation.

3. Create a key skills framework for people responsible for frontline purchasing decisions

Invest in the purchasing function through ongoing and regular training to be able to implement best practice purchasing.

4. Implement a cost management strategy
Ensure you have the expertise in-house or via an external source to devote time to the purchasing process and build effective, long-term supplier relationships.