UK business suffering from a ‘culture of spending apathy’

Published:  02 May, 2013

A report commissioned by the Expense Reduction Analysts (ERA) has found supply chain failings within UK business, which hamper organisational effectiveness, damage competitiveness and restrict growth.

The report shows many companies are suffering from a culture of spending apathy caused by employees failing to control purchasing, review suppliers or challenge the status quo unless there is an issue. The second report of the ERA ‘Smarter Spending for Business’ campaign calls on UK businesses to adjust internal purchasing attitudes to aid their chances of success or survival in 2013.

Five-hundred and sixteen business people across a large range of industries –including manufacturing, public sector, IT, retail and telecommunications – were interviewed in March 2013 for the report.

Highlights of the findings are as follows:

  • A lack of purchasing control – There is a significant absence of company-wide controls and processes, and limited strategic thought towards purchasing:
    - Forty-nine percent don’t know if their business has a purchasing process, have no process or do their own thing when managing a supplier tender
    - Sixty-five percent of junior management are able to make some or all purchasing decisions with no approval from senior employees or insight at board level
    - Less than half of all companies (49 percent) have enterprise-wide purchasing processes.
  • A lack of regular supplier review – Through regular supplier reviews, companies can identify holes in the supply chain. However:
    - Fifty-six percent rarely speak with suppliers, distrust them or only speak with them if there is a problem
    - Fifty-nine percent of businesses will not review suppliers unless there is a problem.
  • UK businesses are focused on cost-cutting – Organisations are thinking short-term instead of long-term and many changes are reactionary rather than proactive:
    - Sixty percent of companies said a need to cut costs triggers a supplier review.
  • A lack of value is attributed to the purchasing function – Purchasing comes as a secondary priority to the primary job role and therefore isn’t seen internally as important enough to warrant investment or training:
    - Nearly half of professionals confessed they just use the previous price without any detailed analysis to benchmark suppliers, or don’t benchmark at all due to a lack of time
    - A quarter of respondents say that if it were their own money, they would be more careful with it
    - Sixty-four percent of sole purchasers have had no formal purchasing training.

Rob Allison, managing director of ERA, said: "Many employees don’t understand the value of managing the purse strings, or even appear to have the motivation or board support to affect real change. 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."

The ERA advises the following:

  1. Implement company-wide supply chain guidelines. These should include clear company processes and policies for employees and for reviewing suppliers; organisations need to answer when, why, how and who makes these supplier review decisions
  2. Develop and enforce an integrated approach to purchasing decisions. Present quarterly supplier reviews to the board. 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.

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