Crossroads, crossfire, or a $60bn productivity opportunity?
Australian businesses are facing a $60bn productivity win. That's a $60 billion productivity dividend without cutting jobs or performance. Let me show the workings. The total estimated revenues of the ASX200 are approximately $1.06 trillion per annum. Further, according to Proxima's State of Spend* research, large organisations typically spend around 65% of revenues with external suppliers. That's a $689bn bill paid to suppliers annually, which is far in excess of the amount paid to employees. What if you could save 8%-10% of that, at no detriment to performance?
Before we get too carried away, it may be prudent to revise the number down a bit. The $1.06 trillion? That's an estimation based on the ASX:200. The 65%, that's an estimation based on the cost mix of the Fortune 500. But even if we were to adjust the number down to reflect Australia's unique industry mix, we are still looking at a number of approximately $636bn. Achieving an 8%-10% saving on that is a range of $51bn - $64bn. Too good to ignore. Right?
Save to spend?
Outside in, the Australian economy is not in bad shape compared to other G20 nations, but neither is it a star performer. While inflation looks relatively under control, growth at around ~1.8% lags well behind the G20 average of ~2.7%. To tackle the productivity challenge, many economists and policymakers are emphasising private sector investment and digital adoption. In most cases, this can only be funded by supply chain efficiency.
The economy sits at an economic crossroads. As the major cost line in organisations and thus the major lever in delivering business value, the right suppliers are key to walking the right path. Procurement should support organisations in making the right choices, balancing growth, resilience, and productivity.
Caught in the crossfire
Internationally, Australia is caught in the crossfire of US China tensions. Tariffs, sanctions, and export controls have shaken commodity markets and investor sentiment. With China, as Australia's largest trading partner, and the US as a strategic ally, there is a very real risk that Australian businesses will feel greater strain if and as tensions escalate; being pulled in two directions.
Demand from China for Australian exports such as iron ore and lithium remains vulnerable to retaliatory trade measures, while US efforts to diversify supply chains away from China have opened opportunities for Australian firms in critical minerals and defence-related sectors. However, the broader uncertainty is weighing on investor sentiment, complicating capital flows and strategic planning. A crossroads, or a crossfire?
For Australian corporates, the imperative is clear: build resilience through supply chain diversification, deepen regional trade ties, and remain agile in navigating an increasingly fragmented global trade environment.
Proxima's Global sourcing Risk Index** published in collaboration with Oxford Economics, underlined this. Generally speaking, Australia is a low-risk international sourcing destination, but the structural dependency on a small number of trading partners, particularly China, presents a concentration risk, whereby a single disruption, be that geopolitical, environmental, or regulatory, can have an outsized national impact.
Strategy, value and productivity hiding in plain sight
Australia's productivity challenge has been well documented, but the debate often revolves around labour efficiency, tax reform, or digital investment. Rarely does it include procurement. And yet most large companies spend more on suppliers than on people, and manage them less.
As markets and needs change, productivity improvements (savings opportunities) present themselves. However, procurement teams need to be armed with the insights to recognise the opportunity and the capacity and capability to drive it through. Is 8%-10% achievable? Absolutely, even more so where global insights can be bought to relatively local businesses (such as in the technology category, marked for its global supply markets).
But productivity isn't just about cost, it's also about resilience. According to Proxima's 2024 Supply Chain Barometer***, the CEO playbook's top three approaches for supply resilience were:
- implementing multisource,
- changing supply sources, and;
- closer collaboration with supplier partners.
There is a perception that resiliency must cost more, and without the right expertise there is a very real possibility that it will.
Buyers, however, can use sourcing strategies and commercial approaches to identify supply, mitigate risks, and shape deals to best suit the business. While data is key here, data without expertise is just math.
Businesses deserve more, and with more, they stand a fighting chance of navigating economic headwinds and delivering on the productivity opportunity.
