Profitability is the goal of every company. Most companies increase profitability by investing in marketing and sales in order to generate turnover.
Another way to increase profitability is to manage third-party supplier spend. Actively managing this spend saves companies not only money, but also valuable time, allowing them to better serve their own clients.
The average company spends 70% of its revenue on third-party suppliers and effective management of third-party spend can on average release savings of 7-14% and have a direct impact on the bottom line (Strategic cost reduction through Procurement – PwC, 2014).
As an example:
A company’s annual turnover is £2.1 million, and its third-party supplier spend is £1.5 million.
Savings of £100,000 – £180,000 can be achieved by actively managing third-party supplier spend
A company’s ability to track and control supplier spend contributes significantly to its profitability. Compared to sales revenues, cost savings may appear to be less significant, but they can have an equally powerful effect on profitability. How powerful this effect is will depend on the sales margin.
As an example:
If Company A (above) has a sales margin of 5%, this generates £105,000 in profits
If company A has a sales margin of 10% this generates £210,000 in profits
It’s obvious that managing third-party supplier spend positively impacts the profitability of any company. In order to do this effectively, companies must either create their own processes or invest in eProcurement software to manage supplier contracts and suppliers.
For companies to ensure they are getting the best value for money, they must evaluate the specifications of the solutions that each eProcurement software offers and calculate the Return on Investment.
Various eProcurement platforms are available to large companies and each has its own advantages. eProcurement Software is available to SMEs that have fewer resources and allows them to better manage third-party suppliers and contracts. oboloo is an intuitive self-service solution that combines sourcing, contracting, supplier and savings management in one software to help companies become supplier smart. For more information, please visit www.oboloo.com.