The Day the FD Realised Nobody Owned £24m of Spend

How a £40m Manufacturer Outsourced Procurement and Improved Margin by 4%

The story below combines elements from several manufacturing businesses I’ve worked with. The commercial outcomes are real, but some operational details have been changed to protect client confidentiality.

Most manufacturers don’t lose margin because they stop selling. They lose it because the business grows faster than the commercial controls around it. Costs creep in, suppliers become comfortable, acquisitions add complexity and nobody notices until the monthly accounts start telling a different story.

This was exactly the situation facing a UK manufacturer turning over around £40 million a year. The business operated from two manufacturing sites, employed around 140 people and had completed two acquisitions within three years. A third acquisition was already being discussed. From the outside, it looked like a successful growth story. Inside the boardroom, however, there was a growing frustration that margins weren’t keeping pace with revenue.

The Finance Director arrived at one board meeting with another set of disappointing margin figures. The discussion quickly turned to familiar topics. Raw material inflation, energy costs, freight and wage pressures had all increased. Every explanation was valid, but none of them answered the question the Managing Director eventually asked.

“How much of this could we actually have controlled?”

The room fell quiet.

Not because people didn’t care, but because nobody genuinely knew. Procurement wasn’t owned by one person or one team. It had evolved over time as the business expanded. Buyers reported into Operations, Finance managed some supplier relationships, site managers looked after local purchasing and the acquired businesses continued using many of their existing suppliers. Individually, these decisions all made sense. Collectively, nobody had visibility of the commercial picture.

The problem wasn’t spend. It was control.

Annual third-party expenditure had reached approximately £24 million, yet nobody could confidently explain where every pound was going. When the Finance Director asked Accounts Payable for a report of every supplier paid during the previous twelve months, almost 380 active suppliers appeared on the list.

The next question seemed simple enough.

“How many of those suppliers are under contract?”

Nobody could answer.

There wasn’t a central contract register. Renewal dates lived in inboxes, spreadsheets and filing cabinets. Some agreements were held locally by individual departments while others couldn’t be found at all. Supplier price increases were regularly accepted because nobody had either the information or the time to challenge them properly.

The business wasn’t overspending because people were making poor decisions.

It was overspending because good people were making decisions without a complete picture.

Recruitment wasn’t solving the problem

Like many businesses, the board’s first instinct was recruitment. They agreed they needed an experienced procurement leader and began searching for the right person.

The first candidate accepted the role before withdrawing after receiving a counter-offer from their existing employer. The second joined the business but resigned four months later after accepting a larger role within a private equity-backed manufacturer.

Almost nine months had passed.

During that time, supplier numbers hadn’t reduced, contracts continued renewing on existing terms and commercial leakage continued. The board realised they didn’t have a recruitment problem. They had a timing problem. They couldn’t afford to spend another year waiting for the right person to appear.

Looking at the problem differently

At the following board meeting, the discussion changed direction. Instead of asking who they should recruit, the Finance Director asked a different question.

“What’s the quickest way to regain control of £24 million of supplier spend?”

That question led to procurement outsourcing.

The board approved a twelve-month engagement with clearly defined objectives, monthly governance meetings and, importantly, a planned exit strategy. This wasn’t about replacing the internal team. It was about bringing experienced procurement leadership into the business immediately while building the processes and governance needed for the long term.

Visibility came before savings

The first phase wasn’t about negotiation.

It was about understanding the business.

A complete spend cube was built using purchase order and Accounts Payable data. Every supplier spending more than £25,000 per year was reviewed and categorised. A central contract register was created for the first time, allowing the leadership team to see contracts, renewal dates and supplier ownership in one place.

Almost immediately, two software contracts approaching automatic renewal were identified before the notice period expired. Renegotiating those agreements protected more than £60,000 during the first year alone.

The saving was useful, but the bigger benefit was visibility. For the first time, the board understood exactly where procurement effort should be focused.

Better preparation created better outcomes

With accurate data available, attention turned towards the largest areas of expenditure. Packaging, logistics, maintenance, energy, temporary labour, professional services, IT and key raw materials all went through structured sourcing exercises. Existing specifications were reviewed, market pricing was benchmarked and competitive tension was introduced where appropriate.

Alongside the sourcing activity, supplier numbers were reduced, approval limits were standardised and a procurement policy was introduced across both manufacturing sites. Decisions that had previously depended on individual managers became consistent across the organisation.

Interestingly, the biggest improvements didn’t come from negotiating harder.

They came from negotiating with facts.

Procurement became part of the growth strategy

By the second half of the engagement, procurement had become more than a cost-saving exercise. Regular supplier performance reviews had been introduced, purchase order compliance had increased significantly and procurement was actively supporting business growth.

When the company’s third acquisition completed, procurement became involved before supplier contracts transferred into the business. Instead of inheriting another fragmented supply base, suppliers were reviewed and integrated into an existing procurement framework from day one.

The mistakes made during previous acquisitions weren’t repeated.

The results after twelve months

The four-point improvement wasn’t created through negotiated savings alone. Around 2.4 percentage points came from lower prices and supplier consolidation. The remaining improvement came from stronger governance, better payment terms, fewer duplicate contracts, reduced maverick purchasing and more disciplined buying behaviour across the business.

The biggest lesson

Looking back, the board didn’t regret outsourcing procurement.

They regretted waiting.

For months they believed the answer was finding the right Head of Procurement. In reality, what they needed was procurement leadership. Once someone became accountable for supplier spend, contracts, governance and commercial performance, the improvements followed surprisingly quickly.

Every growing business reaches a point where procurement needs to mature. Some recognise it early and strengthen the function before margins come under pressure. Others wait until the monthly accounts force the conversation.

The real lesson from this story isn’t that outsourced procurement improved margin by four percentage points.

It’s that those four points were already there.

Nobody owned them.