By Neeraj Gangal
Management consultant AT Kearney says strategic sourcing is vital to increase funds.
At a time where funding of investments is under scrutiny, Middle East companies can use strategic sourcing to recover funds in the short to medium term, a news research has revealed.AT Kearney, one of the world's leading management consulting firms has examined ways for Middle East companies to free up much needed funds.
According to the consultant, strategic sourcing is often applied using international benchmarks and best practices within and across industries. It is designed to identify and improve buying of external goods and services with a focus on how to optimise this external spend to achieve short to long terms savings, which can fund other initiatives. What sets strategic sourcing apart is its continuous attention to improving and re-evaluating the purchasing activities and supplier relationships of a company, thus enabling organizations to adapt to changing market forces.
"Money currently locked up in purchasing can release significant funds. One should remember that a one percent purchasing cost reduction has the same impact on profit as a 10 percent increase in turnover," said Dr. Dirk Buchta, vice president and managing director, A.T. Kearney Middle East. "Our research shows that a total of approximately $1.8bn could be saved across industries such as utilities, aviation, telecoms and banking.
In the utilities industry the major opportunity lies in sourcing of the capital expense (CAPEX) investments planned in the region, whereas for Telecoms, Banks and Airlines the main short term savings opportunities are found in categories related to business operations.
A.T. Kearney's global experience shows that in the airline industry, maintenance and parts is a typical category with a big savings potential. For banks and telecoms, their analysis shows that the savings opportunity usually comes from sourcing of IT and service providers, with savings in those specific categories ranging from 10-25% on average.
While for some goods and services it may make sense to focus exclusively on price, strategic sourcing provides a more nuanced perspective taking into consideration the nature and importance of goods and services bought. For some goods and services which are of vital importance to company competitiveness, different ways of working with suppliers may emerge and increase quality and reduce price, rather than if working with suppliers on an opportunistic basis.
"Following a rigid well-proven approach to strategic sourcing with input using benchmarks and best practices will allow companies in the Middle East to release more than $1.8bn cash, funds, which can be used to shape the future for regional companies" concluded Dr. Buchta.
A.T. Kearney is a global strategic management consulting firm that provides management advice to global clients in all major industries.
That is really one way of finding the money within corporate internal resources without the need to go out for banks and financial institutions. I have implemented 3 strategic sourcing projects 10 years ago for clients and they were very happy with the findings/results. Not many companies in the region looked at this side of the operations due to the fact that access to funds was much easier and all passed the costs to end customers which contributed to inflation and to certain extent to the current crises.