ERA Apathy Report-April-2013


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ERA Apathy Report-April-2013

  1. 1. Doing Business in Britain:A culture of spending apathy?A smarter spending report – challenging ifsupply chain failures are preventing growth ofBritish businesses in tough economic times
  2. 2. Contents03 Executive summary04 Key findings Smarter Spending for Business:05 A lack of purchasing control06 The importance of regular supplier reviews07 UK businesses are focused on cost-cutting, not smarter spending08 The value-added benefits of the purchasing function09 Conclusion10 About ERAExpense Reduction Analysts Contents02
  3. 3. Executive summaryAs the government continues on thepath of austerity and makes furtherspending cuts (an extra £2.5 billionof cuts across departmental budgetsover the next two years), businessleaders are under pressure more thanever to ensure survival by streamliningbusiness costs.The economic outlook for many UKbusinesses continues to look challenging.In his last Budget speech, George Osborneannounced that the Office for BudgetResponsibility (OBR) has cut growthforecasts from 1.2% to 0.6% and thatborrowing remains static at £121bn.The first report, The Psychology ofProcurement, showed that at board-levelmany businesses had misunderstoodthe importance of strategic purchasing.Indeed, 71 percent of financial directorsbelieved procurement was not viewed as astrategic function within their businesses.Executive summary Expense Reduction Analysts 03But, as recent supply chain scandalshave amply demonstrated, thisshort-term, tactical approach to costmanagement can lead to supply chainfailures and cause long-term damageto an organisation’s competitiveness,profitability and brand reputation.This report seeks to discover theattitudes and practices of employees(from junior executives to directors)with purchasing responsibility andhow they impact business operations.516 business people – across a largerange of industries including IT, retail,manufacturing, public sector andtelecommunications – were interviewedfor the survey.The report asks:• Are supply chain processes beingeffectively managed?• Do employees have the skills to identifysuppliers who suit the requirements ofthe company?• Do internal departments collaborate toensure consistent supplier relationshipsacross the board?• Are employees supported by the boardwith appropriate training?• Do organisations form strategicrelationships with key suppliers?‘Doing Business in Britain: A culture of spending apathy?’ is the second researchpiece in the ongoing series of Smarter Spending reports.
  4. 4. Key findings59%The report found the following:• A culture of apathy towards purchasing.• A lack of purchasing control.• Minimal supply chain reviews.• Little value attributed to the purchasingrole – Employees devote little time, andhave limited expertise for making keypurchasing decisions caused by a lack oftraining.• An inherent short-term cost-cuttingapproach – There is a lack of strategyapplied to the purchasing process.A ‘culture of apathy’Our last report, The Psychology ofProcurement, showed that many CEOsand FDs only consider the short-termpicture and default to a defensive cost-cutting mentality in business spending.In fact, 46% of the companies onlydiscussed procurement at board levelonce a year or never.Expense Reduction Analysts Key findings04This ‘Doing Business in Britain: A cultureof spending apathy?’ report found thatthis mindset has translated to frontlineemployees. Often more effective andsustainable purchasing strategies suchas concentrating spend where it’sapplicable – smarter spending – areeither misunderstood or are incorrectlyimplemented by inexperienced employees.Key among these supply chain failuresacross all the UK’s business sectors isthe lack of purchasing control at mid-management level. Indeed, most middlemanagement employees appear totreat purchasing with apathy at best.This coupled with a lack of board leveloversight means businesses are leavingthemselves wide open to making poorcost management decisions. A lack ofpurchasing management at a strategic levelis preventing businesses from making theright supply chain decisions and inhibitingUK businesses ability to grow.Most importantly, unnecessary and poorlyimplemented cost-cutting measuresare compromising the quality of, andinvestment in, products and services andthe inherent lack of control is leading topreventable supply chain disasters.Many employees lack the directionor motivation to change the way theywork. Also, they do not understand theimportance of the purchasing functionand their role within it. Indeed, manyemployees did not have the skills ordesire to build effective relationships withsuppliers and integrate the supply chainpartnership into the business plan.Overall, the report illustrates an ingrainedapathy towards smarter spendingamong UK businesses, stemming froma legacy approach to managing supplierrelationships and an unwillingness of staffto challenge the status quo.This report highlights a number of clear supply chain issues for businessesacross key industry sectors and how they impact organisational effectiveness,damage competitiveness and restrict growth.will not review suppliersunless there is a problemDefinition of smarter spending‘A long-term business strategy that combineseffective cost control and supply chaindevelopment for innovation and investment.’
  5. 5. Smarter Spending for Business:A lack of purchasing controlA lack of accepted working practices andguidelines has, in most cases, led to noclearly defined purchasing policy. Whena policy is in place it rarely filters downto middle management and so manypurchasing decisions are made by employeeswithout the experience, structure and skillsto source the most suitable suppliers.The survey found that 65 percent of juniormanagement are able to make some or allpurchasing decisions with no approval fromsenior employees or insight at board level– demonstrating a clear lack of control.And less than half of all companies, 49percent, have enterprise-wide purchasingprocesses indicating an alarming lack ofcompany-wide supply chain control.Furthermore, a third say there is noconsolidation of suppliers across theirorganisation, and it’s very much down to theindividual to make the decision about whichsupplier to use. This lack of co-ordinatedcontrol is likely to mean that any costmanagement gains will operate within silos.And less than a quarter of businesseshave an approved list of suppliers.Nearly half of those surveyed, 49 percent,don’t know if their business has apurchasing process, have no process or areleft to do their own thing when managinga supplier tender.What processes are in place for managing a tender with existing or new suppliers?A lack of purchasing control Expense Reduction Analysts 05What are the approvals required for junior staff?There is no consolidation of suppliers across the organisation as a wholeThere is a significant absence of company-wide controls and processes aswell as limited strategic thought towards purchasing. Nearly half of thosesurveyed don’t know if their business has a purchasing process, they have no processor are left to do their own thing when managing a supplier tender.0% 10% 20% 30% 40% 50% 60% 70%Anything over a certain spendlevel has to be authorised bythe directorsI can make some (up to acertain budget) or all decisionswithout senior approval35%65%35%56%49%14%31%9%4%2%We have standard processes that we all stick toEach person/department does its own thingThere is no process, we have to generate a newone each timeWe use consultants to manage this processI don’t know what processes are in place 2%StronglyagreeDisagreeDon’t know49%14%31%4%2%35%56%9%
  6. 6. Smarter Spending for Business:The importance of regularsupplier reviewsWithout strategic relationships and regularchecks, underlying issues can remainunsolved until it’s too late. Tied into aculture of purchasing apathy, this surveyhighlighted a reticence among organisationsto regularly communicate and collaboratewith their supply chain. In fact, over halfprimarily use an online search tool tosource a new supplier and this task is oftendelegated to a junior member of staff. Andworryingly, 59 percent of businesses will notreview suppliers unless there is a problem.However, there are some positives. 40percent are starting to see the value intendering and reviewing suppliers – thesebusinesses are more forward thinking andlikely to be better placed to survive tougheconomic conditions. Alarmingly though,60 percent don’t.How would you describe your relationship with your suppliers?How do you monitor supplier performance?Expense Reduction Analysts The importance of regular supplier reviews06Through regular supplier reviews, companies can identify holes in the supplychain. However, 56 percent rarely speak with suppliers, don’t trust them or only speakwith them if there is a problem. This clearly indicates there is no strategic relationshipbetween suppliers and businesses. Relationships therefore are likely to be purely tacticalwith suppliers held at arm’s length.0% 10% 20% 30% 40% 50%3%I meet regularly with all my suppliers and look forways to improve the service or offeringI only speak with my suppliers when a problemarisesI don’t trust my suppliers; I have to keep a closeeye on themI rarely speak with them or am in contact with them44%37%16%0% 10% 20% 30% 40% 50% 60%5%1%5%3%I conduct regular reviews to ensure supplierskeep to their commitments and pricesI tender every project to keep supplierson their toesAs long as they provide a good serviceand the price is fair I am happyI’ve had the same supplier for years andnever had a reason to changeWe use consultants to monitor our costsand controlsI don’t monitor supplier performance32%54%0% 10% 20% 30% 40% 50%3%I meet regularly with all my suppliers and look forways to improve the service or offeringI only speak with my suppliers when a problemarisesI don’t trust my suppliers; I have to keep a closeeye on themI rarely speak with them or am in contact with them44%37%16%0% 10% 20% 30% 40% 50% 60%5%1%5%3%I conduct regular reviews to ensure supplierskeep to their commitments and pricesI tender every project to keep supplierson their toesAs long as they provide a good serviceand the price is fair I am happyI’ve had the same supplier for years andnever had a reason to changeWe use consultants to monitor our costsand controlsI don’t monitor supplier performance32%54%
  7. 7. What triggers a supplier or service review at your company?Smarter Spending for Business:UK businesses arefocused on cost-cutting,not smarter spendingCost cutting measures may keepbusinesses afloat temporarily, butchecks aren’t being put in place andbusinesses are risking their long-termgrowth prospects.A smarter spending strategy, combiningeffective cost control and developmentfor innovation and investment is theonly way businesses will be able tosuccessfully ride the economic storm.UK businesses are focused on cost-cutting, not smarter spending Expense Reduction Analysts 07Organisations are thinking short-term instead of long-term. Many changes arereactionary rather than proactive. For instance, 60 percent of companies said a needto cut costs triggers a supplier review. And over 70 percent said a price increase or poorperformance would be one of the things to trigger a change.0% 10% 20% 30% 40% 50% 60% 70% 80%Annual reviewContract expirationPrice increasePoor serviceNeed to cut costsSenior managementBusiness expansionDown-sizing businessIndustry regulationsOther49%62%78%80%60%18%28%15%23%2%
  8. 8. Smarter Spending for Business:A lack of value is attributedto the purchasing functionHow do you benchmark your purchasing activity?Purchasing very much comes as asecondary priority to their primary jobrole and therefore isn’t seen as importantenough to warrant investment or training.However, with the correct training andmore value placed on purchasing at boardlevel, more employees would be able tobuild the skills to create and maintaineffective relationships with suppliers tohelp aid future growth.Nearly half saythat they receive no reward for securingthe best deal. However, if incentiveswere in place, employees would be moreinclined get a better deal. Currently thereis inherent lethargy towards proactivesupplier relationship building because ofthe lack of value associated with it.While 37 percent regularly monitor themarket to secure best price, nearly halfof respondents confessed they just usethe previous price without any detailedanalysis to benchmark suppliers, ordon’t benchmark at all due to a lack oftime. But a quarter of respondents say thatif it were their own money, they would befar more careful with it!Expense Reduction Analysts A lack of value is attributed to the purchasing function08This report’s findings also demonstrated that there is a lack of value placedon the purchasing function.Encouraging departmental collaborationwould consolidate spending, focus on thebest supplier relationships, create a morecohesive culture internally and change theexisting attitude towards purchasing.It is essential to ensure that all employeesinvolved in the purchasing of goods andservices are given sufficient support andtraining. 64 percent of sole purchasers saidthey had received no formal purchasingtraining. However, this research also showsthat 63 percent said they did not wantpurchasing training despite the need,demonstrating that they don’t understandthe benefits of purchasing training.There is no reward or personal benefitto me for getting the best deal fromour suppliersStronglyagreeDisagreeDon’t know49% 47%4%It’s also imperative that employees provideaccurate measurements and detailedbusiness intelligence to their FD, so theycan provide strategic guidance to the board.However, if the internal attitude towardstraining remains the same, this is unlikelyto happen. And companies will not reap thebenefits of a long-term purchasing strategy.I am sole decision maker but havehad no formal purchasingtrainingFinally, the report found that 43 percentfelt it would be impractical to be trainedin multiple sectors which could suggest aneed for sector specialist advise. Purchasersare forced to be generalists in the decisionsthey make, and therefore will struggle tohone job specific purchasing skills.I purchase multiple areas it wouldbe impractical to have trainingin every oneStronglyagreeDisagreeDon’t know39%43%18%StronglyagreeDisagreeDon’t know0% 10% 20% 30% 40% 50%2%6%46%37%9%OtherI just look at what I have paid beforeI monitor the market regularly and closely to knowI’m not able to benchmark as I don’t have the timeI use the previous price paid and services levelsreceived33% 64%3%
  9. 9. Conclusion Expense Reduction Analysts 09ConclusionPurchasing roles are undervaluedwithin businesses and those who havea purchasing responsibility as part oftheir job function see it very much asa low priority.Senior decision makers are not investingin training employees and employees donot believe they need to be trained inpurchasing.There is a fundamental lack of awarenessof the value of procurement. Oftenpurchasing responsibility lies at the feetof junior members of staff regardless ofexperience or expertise.A wholesale culture shift coupled withorganisational change is required. Morevalue must be attributed to smarterspending across the entire supply chainif businesses are to benefit from costmanagement. Only if these changes aremade to culture, attitude and processes,will companies begin to see operationalefficiencies and increased profitability.UK decision-makers in all sectors mustthink long-term and invest in purchasingand effective supply chain managementto grow.Based on the findings of the DoingBusiness in Britain: A culture of spendingapathy? report, ERA has developedsome top tips for businesses looking toimplement a smarter spending strategy:Top tips for Smarter Spending forBusiness1. Implement company-wide supplychain guidelines.These should include clear companyprocesses and policies for employeesas well as for reviewing suppliers.Organisations need to answer when, why,how and who makes these supplier reviewdecisions.2. Develop and enforce an integratedapproach to purchasing decisions.Present quarterly supplier reviews to theboard. These should not just focus oncost reduction but metrics such as qualitycontrol, supplier relationship and companyreputation.3. Create a key skills frameworkfor people responsible for frontlinepurchasing decisions. Invest in thepurchasing function through ongoing andregular training to be able to implementbest practice purchasing.4. Effective a cost managementstrategy. Ensure you have the expertisein-house or via an external source todevote time to the purchasing processand build effective long-term supplierrelationships.This report concludes that supplier relationships are not currently viewed asstrategic partnerships. Suppliers are often held at arm’s length and reactive decisionsaround price dictates whether a contract remains in place regardless of service orstrategic value.
  10. 10. Specialist Procurement AdvisorsProfitability and efficiency are atthe heart of every organisation.Put simply, the best way to boostyour bottom line is to sell more orspend less – or both.Effective procurement is crucial butoften neglected – either outsourced tocost-cutting consultants or passed to anin-house finance team. But used as astrategic function, with full supportfrom the boardroom, it can deliverenterprise-wide benefits.ERA goes far beyond the short-termsavings of consultants and the limitationsof in-house teams to deliver long-termfinancial and organisational benefits.We deliver:• expertise spanning a wide array ofsupply areas• a lasting and positive influence acrossthe entire supply chain• a more strategic, smarter spendingculture across your organisation• profit to your bottom line, today,tomorrow and into the futureExpense Reduction Analysts Specialist Procurement Advisors10
  11. 11. Specialist Procurement Advisors Expense Reduction Analysts 11Alex WilliamsonCFO at Goodwood“I have been very impressed with the rangeand the margin of savings that ERA has beenable to deliver. They have rationalised our purchasing,simplified our back office processes and generatedimpressive savings, all the while maintaining the trustof our key suppliers and my own staff. Of particularnote have been the environmental advances that theyhave proposed, especially in connection with themanagement of waste from our events. I look forwardto a long term partnership.”Goodwood on coursefor glorious savingsPurchasing influencethat gives evenour biggest clientsextra weight
  12. 12. Expense ReductionAnalystsVisit us SpendingExpense Reduction Analysts (ERA) is a global networkof specialist procurement advisors. Its teams enableorganisations to save money and boost businesssupplier management and smarter spending habits.ERA’s sector specialists build long-term relationshipswith medium to large enterprises, going beyondshort-term gains to deliver objective analysis, informedmarket expertise and continued financial benefits.