University of Gloucestershire

Project Description

To what extent do medium size enterprises obtain best value from their "non-core" procurement?

Project Abstract

Businesses of all sizes have many priorities in their pursuit of competitive advantage. These include the core functions of: Marketing, Finance, Operations, Information Management and HR. The pursuit of increased market share through ever increasing sales targets is a fact of life for most organisations. Driving down costs is another, practiced by relentless process and resources restructuring. When it comes to purchasing, the common advice is to heed the Pereto principle and concentrate on the 20% of purchases that account for 80% of the spending (Price Waterhouse Coopers, 2006). In practice, this appears to be acted upon by most procurement departments, in that, they concentrate on core product purchasing, satisfying themselves with obtaining the best prices they can on these areas.

A typical business (If such exists) is likely to spend;
� 74% of its turnover on Payroll, Raw materials & Depreciation;
� 16% on Non-core expenditure,
� Leaving 10% profit. (Lyson & Gillingham, 2003).
While according to DeBoer et al (2003, p.911) �.large firms spend 30% of revenue on Non Product Related purchases.� According to Thompson (1996, p.7) �Applying a strategic approach to a poorly purchased good or service generates a saving of between 20 per cent and 40 per cent in expenditure.� If, therefore, expenditure on the 16% SMEs spend on non-core procurement could be reduced by 25%, profit would leap by 4% to 14% of turnover (40% growth) without increasing sales. More conservatively, if non-core costs were reduced by 10%, profits would still increase to 11.5% of turnover, or 15% growth in profit. This is also in agreement with findings by Parry et al (2006) who found that cost benefits in the region of 20% were feasible when engineering commodities were outsourced.

This dissertation seeks to determine to what extent businesses are actually achieving best value from their non-core procurement or, conversely, how much potential there is to increase profits by finding cost effective methods by achieving best value.

Surveys released for this project:
Non-Core Procurement 40
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