The pace of change is rapid across much of the indirect purchasing space and it’s easy for organisations to lose touch with the latest trends and innovations in these areas –much to their cost.
Category Intelligence is a necessity: for all the expertise in your function, harnessing data and analysis to recognise how innovation and economic shifts are affecting key markets is a matter of millions in expenditure for global organisations. We’ve got you covered with a list of some of the most influential findings from our category intelligence portfolio this year:
Additional expenses account for a quarter of business travel spend
The main cost for business travel is attributed to air travel at 45%, while hotel costs are 20% (see graph, right). Flights, rail travel, hotels and car rental are normally booked through official channels before the start of a trip, allowing this spend to be monitored. 26% of travel costs are predicted to be attributed to hidden spend, according to Advito.
Hidden spend encompasses the additional expenses incurred on business travel trips which are predominantly left unmanaged and unmonitored by businesses, such as:
- Public transportation
Travel management policies are need to consider the cost of hidden spend and procurement can work with TMCs to address this often overlooked area.
Drops in oil prices have not lead to lower prices for buyers
With over a third of operating cost being dedicated to jet fuel, and with most jet fuels almost entirely composed of gasoline and kerosene – two derivatives of crude oil – airline prices will fluctuate heavily according to the volatility of oil prices (see graph, left).
Between 1960 and 2014, oil prices have increased by over 6000%, fluctuating by 40% between 2010 and 2014 alone (source: Statista, 2014).
These variations translate directly to the ticket prices paid by clients. However, when oil prices drop, ticket prices have still remained at the high level. From mid-2014, oil prices have been seeing uncharacteristic lows, but airfares have remained stable.
Non-cancellation commitments can reduce hotel rates
Caracas, Venezuela is the most expensive city for business travel (see graph, right). This is due to the country’s strict currency controls which make the region more expensive than its South American neighbours. According to Expert Market, taxis cost 70% more in Caracas than in San Francisco and the average meal costs 30% more.
Hotels will set prices early, but these are subject to change according to levels of demand. By booking rooms early, the client is able to help the hotelier forecast demand and hence achieve a lower price.
Committing to non-cancellation contracts also aids the hotel provider in demand forecasting, resulting in lower extra costs for the client.
Profitability differs widely across the creative industry
The creative industry has a complex ecosystem and as such different media platforms will have widely varying costs and profit margins attached to their services (see graph, below).
The profit margins associated with ten different types of media provider and their progression over the last five years are shown in the graph.
Profits will vary according to infrastructure and overhead requirements as well as the popularity of the medium itself.
MRO distributors struggle to expand into emerging markets
The graph highlights that despite increasing pressure to consolidate MRO spend and create global supply contracts, the procurement community is still struggling with this task (see graph, above). This is due to ’global’ suppliers failing to truly penetrate emerging markets in areas such as South America and Asia.
The financial services sector has the highest demand for consulting services
The demand for consultancy will depend often on the complexity of the processes and interactions involved with the sector and the individual business (see graph, right).
For instance, sectors with a highly regulated environment will often use management consultants to help implement strategies with regard to new rules or to more effectively traverse the landscape of existing regulations.
Financial services, with 29.25% of companies, sees the highest use of consulting. The financial sector carries huge amounts of risk in the day-to-day business activities undertaken, so having a rigorous strategy in place for improving procedures could prove key.
Staff costs represent the largest cost driver for legal services
The largest expenditure for law firms is staff costs for fee earners, on average 35% of costs. However, results can vary by nearly 30% depending on location (see graph, below).
The next largest proportion of revenue is profit margin, averaging 25%, but this figure can differ by up to 60% by geography. Staff costs for non-fee earners comes in at 15%, fluctuating again by 35%.
Property costs (11%) and all other costs (14%) are more stable across the regions, but represent a smaller proportion of cost breakdown.
Category managers need to ensure the right balance of staff are being utilised for legal work to reduce unnecessary costs.
Commission schemes incentivise high volumes of candidates being put forward
Recruitment staff will typically be paid relatively low base salaries and will rely on commission (see graph, below). Recruiters are able to increase their commission by reaching different bands of revenue. The chart is an example of a commission scheme for a recruitment company.
The desire for sustainable goods is driving demand for bioplastics in the packaging industry
Demand for bioplastics in the plastics packaging space is set to boom. This will be governed by end-consumer preferences regarding sustainability and environmental factors.
The composition of the IT consulting team will significantly affect rates
The primary cost driver for IT consultancy providers is employee benefit expense (see graph, above). As a result, procurement teams would do well to challenge the structure of the proposed consulting solution, namely the composition of the project’s team in terms of seniority. Procurement teams can ensure maximum value if they assess the rates paid for each portion of work completed by the seniority of the consultants carrying out said work.
More in-depth insight on these and other category intelligence topics can be found here.