Globality calls for modernisation of purchasing processes

Globality calls for modernisation of purchasing processes
Global 2000 companies must modernise outdated purchasing processes to combat inflationary pressures with autonomous sourcing technology and more...

According to The Hackett Group's "2023 Key Issues" report, economic downturn and recession are the top concerns for two-thirds of organisations surveyed, driving the need for further transformation.

Procurement's main priorities for the year have been said to include ensuring supply continuity, combatting inflationary pressures and reducing spend cost.

Now, hammering the message further home, the latest benchmark study titled '2023 Research Insights for CFOs' has been released by Globality, a leading enterprise AI company and serves as a wake up call for Global 2000 companies to modernise their outdated purchasing processes to combat inflationary pressures with autonomous sourcing technology and reduce operating expenses.

The challenge of rising inflation has been at the forefront of procurement and supply chain efforts and does not seem to be easing up, adding more fuel to the procurement fire.

Globality's study - which indicates once again the pressing need for modernisation of purchasing processes - was based on surveys of procurement leaders and suppliers across various industries, including financial services, technology, pharmaceuticals and life sciences, telecommunications, consumer goods, and retail, among others.

Procurement leaders aware of poorly managed indirect spend

The research revealed that 82% of procurement leaders believe that their indirect spend is poorly managed during the sourcing process, resulting in significant cost savings left unexplored.

This indirect spend is estimated to make up 20% to 40% of revenue, and is typically recorded under Selling, General and Administrative expenses (SG&A), which in a typical Global 2000 company translates into billions of dollars.

Despite this, many organisations mistakenly believe that they have control over their indirect spend when the reality is quite different.

Demand to continue pushing up costs

The study also found that two-thirds of suppliers (68%) reported increased demand for their offerings compared to the previous year, and almost half (43%) plan to raise prices in 2023, putting additional pressure on finance executives to control rising costs.

Joel Hyatt, Globality's Co-Founder, Chairman and CEO, commented that these findings demonstrate the need to replace outdated and inefficient procurement processes with proven autonomous technology that saves money on day one.

Addressing indirect spend - an overlooked but critical tool

In a recent article on the same issue, Globality's Chief Revenue Officer and procurement expert Keith Hausmann, expressed that the way of dealing with inflation is to rationalising your indirect, and not your direct spend - as has been traditionally assumed.

When it comes to inflationary pressures, Hausmann says: "There’s another option, though it’s traditionally the one considered last: look at indirect spend, as in all the spend that’s non-product related.

"It turns out that most companies spend significantly more money on items that aren’t supply chain-related at all—on their technology, on marketing, their people and facilities costs, real estate, and so on."

The indirect spend iceberg

He goes on to to say that the reason indirect spend has been historically overlooked as a place to look for savings is that few internal managers have a very good handle on these costs. "P&L statements almost always place indirect spend as vaguely between 20% of revenue to as much as 40% or more at the high end.

"That wide range shows us how poorly this is grasped in the average Global 2000 company—and this is a problem, as indirect spend amounts to significant cost that impacts net income dramatically."

You can read the rest of Keith Hausmann's insights here

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