A.T. Kearney, one of the world’s leading management consulting firms has examined ways for major GCC companies to save on spend by creating transparency and reviewing what is bought, to maximize their purchasing power. Their research shows that at a time when conglomerates and large enterprises are looking to optimize budgets, strategic purchasing can lead to significant savings.
Internationally, strategic sourcing is often applied using international best practices and benchmarks within and across industries. It is designed to identify and improve buying of external goods and services with a focus on how to optimize this external spend to achieve measurable savings. Regionally, large conglomerates such as state funds or privately owned companies do not leverage their purchasing power to their benefits. There seems to be very little transparency on who buys what from whom at what price.
“We see a significant lack of transparency in the procurement arena,” said Frank Thewihsen, Vice President, A.T. Kearney Middle East. “Within the conglomerates or large enterprises the same goods are purchased at different prices, because procurement organizations (if existing) are currently not cooperating. In the GCC you find very few conglomerates with an empowered cross organizational procurement organization seeking to optimize purchasing across all entities.”
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. Savings generally occur either through optimizing procurement around direct materials, but also through cross vertical joint procurement, for example indirect materials.
A.T. Kearney’s regional experience shows that utilities, banks, telecoms, Oil and Gas and transport have the largest savings potential. The analysis also shows that in banks and telecoms the savings opportunity usually comes from sourcing of IT and service providers, with savings in those specific categories ranging from 10-15 percent on average. Savings are not based on pure volume aggregation but more likely on specification harmonization, demand management, benchmarking, improved supplier management and applying adequate purchasing levers by well trained procurement professionals. In the UAE alone savings of AED 3.5 bn are possible and would immediately improve the bottom line of the companies.
“For more than 10 years A.T. Kearney has operated an international buying consortium, the Leveraged Sourcing Network (LSN), which allows its members to pool their purchasing and benefit from savings of 9 - 24 percent, depending on the category,” added Thewihsen. “We have broad and in-depth expertise when it comes to strategic sourcing and we help large companies and conglomerates all across the globe.”
The LSN by A.T. Kearney is a horizontal market consortium that delivers significant, immediate value to its members by leveraging the combined purchasing power of its subscribers. The consortium, made up of Fortune 1000 companies that share similar buying needs, essentially achieves quality and price-advantaged contracts in key supply categories for its members. This is one of the compelling solution approaches for companies that need to significantly cut their costs for goods and services with speed and achieve a savings realization that can be measured in weeks rather than months.
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