Did you know that a recent study of manufacturing SMEs showed that on average the net profit of those businesses was just 5%.
The impact of the people within a business is well documented, and it is well understood that they have a significant role in the success of the business. Yet the average wages costs amounted to just 34% of turnover.
Compare this to the spend within your supply chain, where this equates to over 51% of turnover, and is nearly 69% higher than wages.
Now consider the impact of that spend on your productivity and performance of your business.
Cutting tools spend can have a huge impact on the manufacturing process times and therefore impact productivity. Every single employee needs a product or service from your suppliers to enable them to do their job, so it is important that they are effective and fit for purpose.
Poor quality products from your suppliers can also impact on your quality with your customers, putting your business brand and reputation at risk.
Your suppliers are therefore one of the most valuable, if not the most valuable asset in your business.
Yet do you manage your suppliers like you do your people?
Do you invest as much effort into ensuring you have an efficient supply chain, that is creating value in your business?
Do you know where to focus your efforts with your suppliers? Do you know the risks within your suppliers and which products and services can bring huge brand damage to your business?
Do you know what you are spending, who with, on what and how?
Are you using this to formulate a clear cost reduction strategy?
A 5% reduction in supplier spend can deliver a 69% increase in profit
Focusing on your suppliers and reducing spend can be the single most valuable thing you do, but you need to invest time and money to achieve this.
The rewards are significant, on average this would deliver a 69% increase in profits.
Imagine the additional benefits of increasing productivity both on the shop floor and back office too by procuring the goods and services in a more effective process, as well as focusing on delivering productivity improvements where it is needed most on the shop floor.
The 5 Steps to increasing your profit
Know your spend in detail
Why you buy it
How do you buy it, (what process do you use?)
Know the contracts you have in place with your suppliers
What can be sourced as they are not under contract?
Are the contracts on your terms?
Note: the terms must cover commercial as well as legal agreements. Do not use just T&C's
Develop sourcing plan
Use the above to develop a plan
Ensure you know the risks within your supply chain
Source all products and services where no contract exists, or there is a termination clause available for use which not not impact your business.
Use contractual framework to work collaboratively with your suppliers.
If you need any help with this then contact APS today for a free no obligation conversation.
We are specialist in supporting manufacturing SMEs to reduce their operational costs, and have an unrivalled knowledge and understanding of different solutions that can help your business.
We know how to do all of the above, which is procurement. Everyone can buy something, but not everyone can procure something.
Give yourself the chance to improve your profitability and competitiveness today.
See this recent study to see how we reduced costs by 31%!
Call: 07515 003472