ACRES OF DIAMONDS
The Value of Effectively Managing Low-Dollar, High Transactional Volume Spend
September 2005
ACRES OF DIAMONDS: The Value of Effectively Managing Low-Dollar, High Transactional Volume Spend
The fact remains that the majority of procurement initiatives have traditionally focused on the big bang high-dollar, leveraged spend approach to procurement. While this approach is appropriate for certain commodities utilizing an event-centric tool, extensive research including a CAPS 2003 study indicates that it does not create a sustainable COGs savings model. The examples provided by the Floor to Ceiling Analyses included with this report provides further confirmation of this assessment.
What is interesting to note is that low-dollar, high volume procurement is often overlooked by the majority of purchasing departments and software vendors, whose time and energy is usually focused on negotiating the big dollar contracts. This occurs despite the fact that statistical analyses of purchasing trends in both the public and private sectors consistently verify that approximately 90% of all transactional activity relates to purchases of $25K or less. Ironically, low-dollar transactions also represent the greatest potential for sustainable savings. This trend is likely to increase in scope as discretionary spending caps are raised to accommodate front line efficiency requirements.
In one government agency analysis conducted by e-Procure, of the $215 million in total annual expenditures $37 million was related to purchases of $25K or less. While this accounted for 17% of the total spend, it consumed an incredible 92% of all transactional activity. Referencing historical savings performance, a 10% reduction in COG ...