"Freedom" in the workplace costs corporates £22 million per year

"Freedom" in the workplace costs corporates £22 million per year

Research recently released by TomorrowFirst assesses the impact professionals, managers, administrators and secretaries have when ordering non-strategic goods and services on behalf of their companies. The findings reveal that buying these from non-approved suppliers can cost corporates an average of £22 million per year.

While business has a good idea on what this money is being spent, it seems powerless to control the situation. Few companies scope the problem accurately;heads of purchasing believe that only 26 percent of employees place orders with external suppliers, whereas in reality 74 percent admit to buying goods and services for their company.

The issue is exacerbated by the myth of the preferred supplier list. Buying from preferred suppliers ensures that companies benefit from the prices,delivery times and levels of quality that are appropriate for their business. A total of 86 percent of professionals, managers, administrators and secretaries state that their company has a list of preferred suppliers, but 94 percent say that they buy from non-preferred suppliers.

Buying "off-list" prevents companies aggregating their spend to get the best prices possible for goods and services. The excuses given for such maverick spending range from "one-off purchase" (44 percent), "in a hurry" (45 percent), "don't stock what is needed" (28 percent), and"out of stock" (25 percent). Unfortunately, the majority of companies only consult their employees about their requirements on a reactive basis.

George Cooper, chief executive officer, TomorrowFirst, said: "In the UK today business leaders are grappling with the repercussions of the economic slowdown in the USA and Japan. Perhaps because of this, senior executives are overlooking the impact that innocuous everyday items, which keep the wheels of industry turning, can have on their business.

"Rather than cutting the travel and IT budgets in a way that impacts effectiveness, business leaders can harness the Internet to ensure that authorised employees purchase from approved suppliers that offer best value,achieving an appropriate trade-off between price and quality that meets business objectives. The net result will be a lower cost base, preparing business for the next upturn."

Although over half of heads of purchasing could not estimate what buying non-strategic items off-list might cost their company on an annual basis, 38 percent provided a "guesstimate", which ranged from £20,000 to£250 million, with an average of £22 million.

Perhaps paradoxically, this level of expenditure makes the purchase of everyday goods and services like stationery, training and travel a critical strategic business issue. Heads of purchasing believe that travel and transport(34 percent), stationery (28 percent) and IT (22 percent) are among the worst examples of employees buying from non-preferred suppliers. Travel and transport and IT are also among the top categories by value of spend.

Heads of purchasing also have views on who is responsible for buying off-list, believing marketing (51 percent), sales (30 percent), administrators and secretaries (28 percent) and mid-level managers and professionals (40 percent) to be the worst maverick spenders. Interestingly, although IT is identified as a high spend/high off-list item, just 13 percent hold the actual IT department responsible. This may be because managers and administrators are purchasing IT directly.

Buying from non-approved suppliers is clearly a strategic issue that is costing companies dearly. Business recognises the issue, with over a third of companies acting to address the issue of maverick buying through eProcurement. A further 52 percent anticipate adopting an Internet-based eProcurement solution within two years.

The early adopters of eProcurement are gaining some good early wins. A third of early adopter heads of purchasing say that they have already seen average improvements of 80 percent in the levels of maverick spend. Authorisation has also speeded up (64 percent), both by eliminating unnecessary steps in the process and by enabling e-authorisation. Significantly, early adopter heads of purchasing also recognise that 72 percent of employees place orders with external suppliers.

Encouragingly, early adopter managers and administrators broadly agree,saying that their experience of eProcurement led to faster authorisation (31 percent), and enjoyed enhanced ease-of-use (35 percent), empowerment (19 percent) and flexibility (15 percent).

The research, undertaken by independent research company Dynamic Markets from April-June 2001, surveyed the attitudes of 150 employees and heads of purchasing to buying indirect goods and services for their companies. The 150 interviews comprised 50 with heads of purchasing, 50 with administrative and secretarial staff and 50 with managers and professionals – all from the same 50 companies and all with annual turnover in excess of £200 million.

Further information can be found at www.tomorrowfirst.com