Spending, apart from capital investments, tends to grow a little faster then organisations in most cases. Left unchecked firms face a ‘mid-life’ crisis where working capital is stretched to levels requiring borrowings incurring heavier and heavier finance costs.
A lack of policies guarding the growth of spend is often an underlying cause. Naturally, many other factors come into play as well – an extreme focus on growth, inorganic growth (M&As), lack of standardization for spend reviews, infrequent and irregular supplier reviews, poor supplier maintenance, spend policy over-riding behaviour or a ‘just get it done now’ (covered as maverick spend in an earlier article) culture among others.
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