NPI Pinpoints Areas of Supply Chain Overspending

Do you sometimes get the feeling that you're spending too much for transportation, technology and energy?

You may be right.

According to a mid-year review of supplier pricing and supply chain spending trends, NPI estimates that today's manufacturers, distributors and retailers will overspend more than $415 billion in 2010.

NPI's research included an analysis of spending trends for manufacturing, retail, industrial and other supply chain-focused organizations within the S&P 500. In addition, the firm also analyzed pricing data for top suppliers in three specific spend categories: transportation, technology and telecom, and energy.

Here are a few specific results from the research, along with NPI's recommendations to rein in overspending:

Transportation NPI estimates that supply chain organizations will overspend $124.5 billion on shipping and logistics services this year. For instance, companies will:

Overpay 12-15 percent, on average, for fuel surcharges.

Overspend on overnight air. NPI estimates that large shipping organizations are overspending 25-30 percent on overnight shipments. In many cases, they can select a less costly shipping method that meets their service requirements at a fraction of the price.

Neglect to recover refunds. Based on NPI's research, a large shipper typically loses 3-4 percent of its transportation budget to unclaimed refunds stemming from service failures and billing errors.

Overpay for address correction surcharges. The surcharge for address corrections is almost 40 percent higher than it was two years ago. However, companies can achieve lower rates for this accessorial.

Technology/Telecom According to NPI, large supply chain organizations can either overspend or save approximately $207.5 billion in technology and telecom expenditures. NPI's research shows that savings can be realized in the following high-impact areas:

Warehouse management system software. NPI found that poor pricing visibility has led to rampant overspending on WMS software. Many companies have been able to reduce the cost of their WMS systems by as much as 27 percent in 2010 through price benchmarking.

Enterprise software support. On average, enterprises are paying 14 percent too much for support on their critical business systems (e.g. ERP, finance).

Wireless plans. In 2010, companies will waste $4.3 billion by selecting the wrong mobile service plan for their workforce needs.

Voice and data networks. Based on NPI's research, today's supply chain organizations can recoup approximately 23 percent of their telecom budget by auditing their current environment and optimizing their rates and agreements accordingly.

Energy In this year alone, supply chain organizations will overspend on energy and utilities by $83 billion. NPI says overspending in this category can be attributed to:

Uncompetitive rate plans. NPI found that companies often fail to conduct a detailed review and assessment of tariffs and rates, which can result in as much as 30 percent in overpayment. By reviewing their current spend and benchmarking pricing, they can identify alternative tariffs that will significantly reduce energy spend.

Lack of comprehensive understanding of usage profile. If you don't understand your company's energy usage profile, how can you maximize rate reduction opportunities? In many instances, NPI's research shows that utility companies and their clients are not in full communication with each other as to the operational capabilities and potential savings opportunities. The costly result is that a company's load profile, equipment usage profile, and individual and combined facility profile may be misaligned with current needs.

Supply distribution. Likewise, electricity and natural gas service configurations often do not utilize the most cost-effective delivery options. By understanding how energy is being delivered and how infrastructure charges are determined, companies can identify cost-savings potential.

Clearly, companies can do better to optimize spend management across these different categories. Also, it's striking to see how overspending is often associated with poor communication between buyers and suppliers. This research shows once again, that building strong, collaborative relationships with your suppliers is fundamental to not only risk management, but to spend management, as well.

TAGS: Finance
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