The Industry Challenge
Mining companies and their contractors and suppliers are continually striving to reduce costs to remain competitive and viable. The procurement function of these companies plays a major role in achieving these cost reductions, with every dollar saved contributing directly to the company’s bottom line performance.
What is Spend Management?
Spend management is the sourcing and contract management phases of the procurement process. These activities are the strategic areas of procurement that identify areas of cost reduction across the business; implement strategies to achieve cost reductions under contract; and then proactively manage the contracts to ensure the cost reductions are realised by the business.
Recent research by The Hackett Group has shown a trend amongst world leading companies in procurement, to outsource spend management to third party providers.
What are the Benefits?
A typical measure of the procurement function’s performance is ROI i.e. cost reduction achieved / cost of the procurement service. According to The Hackett Group, forward-thinking world class companies that are realising improved ROI from procurement activities over other companies in their peer group.
The contribution to the improved ROI from outsourcing spend management is influenced by two key factors:
- Experienced outsourced service providers are a centre of excellence for best practice. They have fit for purpose technology and processes, and market insights that enable improved commercial outcomes; and
- Service providers can utilise their people very efficiently across multiple clients, and leverage their processes, technology and market information to dilute the service overhead for each client.
Research has shown that the benefits of outsourcing spend management also includes measurable improvements in:
- Percentage of spend under management
- Contract compliance and mitigation of risk
- Visibility in spend and supplier performance
- Time to focus on core business activities
- Market intelligence and performance benchmarking