How To Easily Increase Profitability by Managing Third-Party Spend

Every company wants to increase its profitability. To achieve this most companies, invest in marketing and sales to generate turnover that leads to increased profitability.

There is another way to increase profitability and that is to manage third-party supplier spend. By actively managing this spend companies not only save money, but they can also save valuable time and improve their offering to their own clients.

It’s estimated that 70% of the average company’s revenue is spent with third-party suppliers and that effective management of third-party spend can on average release savings of between 7-12% and can have a direct impact on the bottom line (Strategic cost reduction through Procurement – PwC, 2014).

As an example:

Company A has annual turnover of £2.1 million and third-party supplier spend of £1.5 million.

Actively managing the spend delivers annual savings of between £100,000 and £180,000

Having visibility and control over supplier spend can contribute a significant amount of money to a company’s profitability. Although the cost savings delivered may appear to be less than the sales revenues generated over the same period, they can have an equally powerful impact on a company’s profitability. The significance of this impact is determined by the sales margin.

As an example:

If Company A (above) has a sales margin of 5%, this generates £105,000 in profits

or

If company A has a sales margin of 10% this generates £210,000 in profits

It’s clear that actively managing third-party supplier spend delivers a very positive impact on any company’s profitability. For companies to do this effectively they need to either create the processes themselves or to invest in an eProcurement software to manage the supplier contracts and the suppliers themselves.

Companies must evaluate the specifications of the solutions that each eProcurement software offers and calculate the Return on Investment to ensure they are getting the best value for money.

There is a selection of different eProcurement platforms available to lager companies and each has its own strengths. For those smaller companies, with fewer resources there is one eProcurement Software that enables SMEs to easily stay on top of all their third-party supplier spend. oboloo is an intuitive self-service solution that incorporates Sourcing, Contract, Supplier and Savings Management in one software to enable companies to be supplier smart. To learn more please visit www.oboloo.com