Estimated $415-billion overspend for 2010

Manufacturers, distributors and retailers will waste some $415 billion (R2 905-billion) this year overspending on transportation, technology & telecommunications and energy, US expenditure management consultancy NPI revealed in September.

NPI’s research found that poor visibility in benchmarks for pricing, terms and cost-to-serve will contribute to overspending in 2010.

The research is based on trends in manufacturing, retail, industrial and other supply chain-focused companies on the S&P 500 (an index of 500 large publicly held companies that trade on the US equities market).

It also analysed pricing data from top suppliers in each of the three spend categories, where it found “there is little visibility of benchmarks for pricing and terms” and where “it is easy for even the most advanced purchasing groups to be vulnerable to overpayment and suboptimal terms,” said John Haber, executive vice president of NPI’s supply chain spend management practice, in an NPI release.

Furthermore, “as we see investment in these categories increase, overspending in these areas will increase correspondingly,” said Haber.

NPI estimates that supply chain-focused firms will overspend $124.5 billion (R871,5-billion) on shipping and logistics services in 2010. On average, they overpay 12-15 % on fuel surcharges, while large shipping organisations are overspending 25-30 % on overnight shipments.

NPI said the organisations included in the study would overspend on energy and utilities by $83 billion (R581-billion) this year. It attributed this to organisations failing to conduct detailed assessments of tariffs and rates, to understand energy usage profiles and to implement cost-effective energy distribution.

“As companies navigate through today’s economy, every contract and every purchase counts,” said Haber. “By focusing on spend management categories that are ripe for optimisation, supply chain executives can quickly meet the mandate to reduce costs without changing core business processes or reducing headcount.”

To get insights into cost management and other issues affecting Supply Chain Management and Procurement register to attend the 4th Annual SmartSourcing and Cost Management Conference, part of SmartProcurement World, which will be hosted on November 16 – 18 at Gallagher Convention Centre in Midrand.

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