June 2014 |

Proxima blog; Guy Strafford

Alsbridge have written a whitepaper outlining why business leaders should look to managed service providers to drive out hidden treasures within their indirect spend.

The whitepaper does an excellent job in raising the need for better management of indirect spend and identifies what is possible with a traditional procurement function – so hats off to Alsbridge. However, in our view the whitepaper doesn’t go far enough.

The research doesn’t address the transformation that is possible through effective indirect spend management; nor does it make clear that there is far more to gain than savings, such as improving overall business performance by aligning third party costs with corporate aims.

Today’s business leaders face many challenges that can no longer be answered with traditional thinking and measures. Business leaders need to be innovative and non-conventional – looking outside the organisation to uncover opportunities to not only improve their bottom line but also reduce risk, increase innovation, improve productivity and make people’s lives easier by enabling them to make smarter decisions.

At Proxima, we have our own methods for helping clients unlock their “vault of gold.” The advice that we give innovative business leaders who may be re-thinking their business model is this: Do not downplay procurement. This very sentiment was recently addressed in the Harvard Business Review which also highlighted our popular Corporate Virtualisation research.

Our research found that labour costs now account for only 12.5 percent of total revenues. In contrast, non-labour costs account for 69.9 percent. These statistics put into sharp focus that management practice has not kept pace with this greater externalisation of cost. With non-labour costs now accounting for more than 69 percent of revenue, on average, it is clear that only a relatively small number of businesses have transformed their supplier relationship management models to account for this change.

The essential role that suppliers play today, and the increased complexity of the supply chain, increases the need for management of the related external activity. And this management can improve business performance significantly. But to drive the full benefit from suppliers, companies must have full oversight of supply operations so that productivity, operational and reputational risk, innovation and intellectual property are all properly maintained.

Employing a specialist service provider can help to ensure that your procurement function is operating to its maximum potential and that suppliers are treated as a driving force for innovation and viewed as critical partners in the company’s success. Perhaps the 10 largest companies on the planet can do the job effectively using in-house resources, but most cannot. Doing it the right way and deriving maximum results is prohibitively expensive.

Alsbridge rightly confirms that the “vault of gold” is out there. In many cases, the organisation already holds the key, though they may not know it. Third party providers like Proxima know how best to put the key to good use.