Raising Finance

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Wanted: Smarter spending strategies for growth

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Businesses in the UK and Ireland are fighting a host of psychological barriers to growth strategies, according to a recent survey by Expense Reduction Analysts (ERA).

The research was carried out among 100 financial directors (FDs) from companies with revenues between £10m and £500 in the UK and Ireland. It suggests FDs and CEOs are struggling to master the delicate balance between cutting and managing costs to survive today, and investing to grow tomorrow.

Barriers to effective procurement

The report has uncovered a series of barriers, blocking FDs from implementing effective procurement strategies. Most strikingly, some 77 per cent of companies only consider the short-term picture and immediately default to a defensive cost-cutting mentality in times of austerity. 

Rob Allison, managing director at ERA explained: “Businesses and government have responded to the economic downturn by implementing wide-ranging cost-cutting initiatives. Unfortunately, while cost cutting may work in the short term, it won’t enable them to compete effectively in the long term.”

The problem also rests at board level, where procurement is usually discussed only once a year or never. Meanwhile, the understanding of the entire process stays limited. Four out of five organisations don’t have a specialist procurement team or individual, and most FDs feel employees suffer from a lack of time, experience and energy when it comes to securing the best supplier deals.

Resistance from internal departments

More than one in three FDs leave procurement responsibility to individual departments but almost 60 per cent stated that some departments have resisted efforts to establish professional procurement practices.

That’s not being helped by the fact that 57 per cent of respondents felt that procurement was hindering the effectiveness of their department for the sake of cost cutting.

Based on their findings, ERA offered some smarter spending tips for how other companies can break down the barriers to business competitiveness and growth.

Next generation procurement:

  • Ensure effective procurement becomes a part of every organisation’s DNA – led from the board room to the shop floor to the supply chain; and
  • Ensure that procurement is not an empty seat in the board room.

A smarter spending psychology:

  • Ensure all staff adopt a smarter spending psychology – just because your staff are good at purchasing core products, it doesn’t mean they will be good at “indirect spend”;
  • Ensure performance management is aligned to a smarter spending psychology;
  • It’s essential that internal and external reporting provides accurate measurements and detailed business intelligence to allow the FD to provide strategic guidance for future procurement strategies; and
  • Conduct regular evaluations of your supply chain and build closer relationships between your staff and suppliers.

Rob Allison concluded: “The survey results demonstrate a disconnect between the finance director and procurement. This illustrates a cultural issue which should be addressed – if nothing else, finance directors must be equipped with procurement knowledge and the appropriate skillset. 

“Ultimately, finance should drive and influence procurement, enabling businesses to free up cash, drive growth and deliver more sustainable and profitable smarter spending habits.”

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