Dutch companies face new rules for cost management

AMSTERDAM - July 2, 2013 - PRLog -- Proxima has released a new research report today (http://info.proximagroup.com/new-rules-for-cost-management), revealing that supplier costs now account for 76 per cent of the Dutch index’s collective revenues, meaning that just a one per cent reduction could boost profits among those companies by an average of 5.4 per cent a year.

By comparison, the same one per cent reduction in labor costs – often seen as the first port of call for cutting costs – produces an EBITDA uplift of only 0.7 per cent.

The research collected and analyzed financial performance data from across the AEX25 index between 2009 and 2011. It clearly illustrates the greater influence being wielded by external suppliers – with labor costs decreasing by 27 per cent during the period, compared with supplier costs increasing by 49 per cent. This is being driven by an ever widening range of specialist services and technologies being required by businesses for the development and delivery of products for customers who demand greater innovation, quality, performance and reliability.

The problem is that, although management teams understand the value that employing specialist providers creates, their governance, oversight, control and risk procedures have not evolved at the same rate. This leaves companies open to reputational, operational and financial risk, created principally by unforeseen problems occurring two or three steps up the supply chain.

Understanding the fundamentals of these changes requires some different thinking. The nature of a company has evolved dramatically over the past few decades. Businesses now rely on far wider and more complex network of suppliers and partners than ever before. Engaging with suppliers more closely – bringing them into the boundaries of an organization and aligning their processes and priorities with a company’s own – will increase management’s oversight of the entirety of their operations, while enabling them to demand the best levels of quality, service, innovation, performance and value for money from the whole supply base.

These trends are being seen in other global markets as well. In Proxima’s analysis of the FTSE-350 index in 2012 (http://info.proximagroup.com/the-10billion-profit-opportu...), similar results were uncovered for companies listed in London, with supplier costs outstripping labor costs by more than five times (68.3 per cent compared with 12.9 per cent). Certain sectors, including construction, chemicals and retail, also stood to tap into double digit percentage EBITDA increases just by reducing supplier costs by one per cent.

The research was conducted by Proxima in conjunction with the Strategy and Research practice at FTI Consulting.

Download the full research report here (http://info.proximagroup.com/new-rules-for-cost-management) and receive:

• In-depth analysis of the Dutch AEX25 cost structures
• Key trends into changing corporate spending behaviors
• Case studies highlighting opportunities in action