Procurement savings could provide £53bn boost to FTSE-350

The UK’s 350 largest companies could boost profits by £53bn if they cut their procurement and supplier costs by just 5%, according to a new study.

Procurement adviser BuyingTeam believes that rather than cutting cost by reducing headcount, business needs to focus on reducing procurement costs.

Analysts expect a steep decline in company revenues in 2010 ­ the double dip ­ and that these savings could be made by tackling inefficiencies in procurement and supply chain.

BuyingTeam identifies eight sectors that would most benefit from a 5% cut in procurement costs: construction and materials, chemicals, technology hardware and equipment and general retailers. It says that, currently, almost half of all sectors represented in the FTSE-350 show significant variation in the efficiency of their procurement programmes and that the least efficient in the construction and materials business could see as much as a 140% earnings increase if it made the 5% procurement cost cut. Fixed line communications, mining, electronic and electrical equipment and beverages are the sectors where the most efficient procurement strategies are found.

“Procurement is so often overlooked as an effective tool when looking to recoup earnings,” says BuyingTeam CEO Matthew Eatough. “Indirect costs are a less visible part of the cost structure of many companies, but have significant potential for unlocking value. As the need to make additional cost cutting continues into 2010, we believe this is where companies can deliver real immediate value, while ensuring they are still poised to take advantage of the eventual upturn.”

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