Читать книгу Profit from Procurement - Jose Oliveira Valentede - Страница 7

Procurement represents between 50 and 80% of a company's total costs, depending on the industry. That feels like a big number, but that's just because external spend is not usually counted in one place. A company's external spend contains so many things (from office supplies to raw materials to factory maintenance services to energy, fleet, marketing, and IT), fragmented across so many business units, geographies and budget lines, that it's rarely seen in aggregate (see Figure 1.1).

OK, so the spend is big, but how big is the opportunity? In many companies that have not yet optimized Procurement, it can be very significant. Figure 1.1 looks at a typical manufacturing company, with revenues indexed to 100. Well, if you simply subtract from that 100 your EBIT (or add back in your losses), then take out depreciation and your whole salaries and wages bill, then what's left of the 100 is by definition externally procured. In this example (see Figure 1.2), that amounts to 60…60% of the revenue!

Figure 1.1 Procurement Spend as a Percentage of Total Cash Outflows

The next question is, how much can you take out of that 60? Well, a common mistake is to assume that “10% should be possible.” Maybe 10% is possible, but not on the whole 60 of spend, at least not in the medium term, because some spends will be non-addressable or locked in, and there is always a “tail” of specialist one-off suppliers. These non-addressable spends can be significant, so it's safe to assume that maybe 60% of the 60 is addressable in the medium term. If your organization is global, you may also have a collection of very small, remote geographies whose spend may be too small to merit addressing in the medium term, which could reduce the 60% further.

In terms of how much can be saved, this of course varies by category and by company. But, long story short, a company that has not optimized Procurement, can look to take roughly 10% out of its addressable spend. In the worked example in Figure 1.2, that equates to a saving of 3.6 from an addressable spend of 36 (60% of 60). Given that the company had an EBIT of 10 going in, then that's a 36% uplift on a 10% margin. And that's before you factor in any Capex savings (which of course hit EBIT only indirectly).

Figure 1.2 Procurement's EBIT Impact

The beauty of Procurement is that this opportunity (or your spend) is spread across some 40 or so spend categories. This comprises a very diverse set of things (from Office Supplies to Logistics Providers to Raw Materials to Components…), each with totally different suppliers and its own internal stakeholders. Since a Procurement effort is best structured around category teams (see Chapter 3: Sourcing Execution), then this creates a natural portfolio effect across your target—one category may fail, but another will over-deliver. This portfolio effect is critical in Procurement economics, in that it significantly mitigates the risk of non-delivery.

At the end of the day, it would be difficult to find opportunities with as much potential impact on EBITDA as Procurement, without the need to reduce headcount, close offices, or make major investments. So, at least on paper, the Procurement opportunity is significant.

That's all very well in theory. But what about in practice? How do I know that the 10% is actually there? Why is there an opportunity in this cost base? Answer: Because in many companies, Procurement is not optimized. Let's examine why that is the case.