Along with wages, procurement is the biggest expense most businesses face, which means the cost of purchasing and running your company is a huge potential source of efficiencies waiting to be uncovered.
But, where do you start? Reviewing your procurement process is a big undertaking, but with even bigger savings at stake, it’s worth investing the time and effort.
To help you on your way, here are some actionable steps you can take to start realising major efficiencies quickly.
1. Establish visibility
Did you know that on average businesses have no or limited visibility of around 20 percent of the value of their expenditure?
Shocked? This could well be the case in your business!
Businesses purchase a lot of low-value goods and services to facilitate day-to-day operations. But all too often, these items are considered too small to be managed by a procurement specialist.
This means thousands, or maybe even tens of thousands of pounds, are being spent without anyone really knowing how or where. The potential for savings in how your company procures low-value goods and services could be huge.
But of course, to realise those savings, you need to establish visibility.
Learn how to tackle expense fraud in your business.
##2. Set procurement goals
Before embarking on creating a procurement strategy, first decide what your objectives are. Cost savings might be the first thing that comes to mind but good procurement looks different to different businesses.
For some, the priority will be cost savings but for others it might be improved cash flow, or compliance, improving the quality of goods and services, or finding more efficient ways to utilise resources. So, decide what good procurement looks like to you and make this the basis of your approach.
3. Adopt a cloud-based procurement tool
If you are still operating with manual, paper-based systems then this will undoubtedly be central to your inability to trace expenditure in your business. Embracing digital tools is the way forward.
The visibility afforded by a cloud platform will enable you to see where cash is being spent and automation will help you streamline your processes.
If you are in the market for an all-encompassing enterprise solution, tools such as Kissflow, Prokuria, and Claritum work brilliantly to centralise all the components of procurement, with features such as supplier management, purchasing and orders, invoice approvals, analytics, and business-wide efficiencies.
Without a doubt, these platforms, when used correctly, will revolutionise procurement in your workplace. However, they do require a team of trained individuals to manage them successfully. Implementing such a sophisticated digital approach without the proper infrastructure in place is not something we would recommend.
If you are looking for an easy to implement digital tool in order to bring greater transparency to your procurement process, then expense management platforms are the place to start.
These tools are agile and low cost, making them attractive and easy to implement. Take our very own Expensemate platform, for example, it offers complete oversight of company spending on company cards, as well as giving managers complete control over individual employee expenditure.
Employee expense spend, unless properly managed, can seriously impact cash flow and profit for SMEs.
4. Supplier engagement and communication
Suppliers are vital to the ongoing operations of a business, particularly those that provide raw materials or keep business critical infrastructure running.
Close collaboration is key to effective, efficient supplier relations. Building trust through two-way communication should form the basis of the ongoing relationship.
Other effective ways to manage supplier relations and realise best value include:
- Treat suppliers as strategic partners
- Look for win-wins
- Create a framework for problem resolution
- Monitor supplier performance with specific key performance indicators and help them to achieve these.
5. Use data to optimise your inventory
Getting your stocking levels wrong can be costly but forecasting them accurately is tricky. That is why inventory management is so important.
Many small businesses assess their inventory by manual stocktaking, but this is inefficient and disruptive, and as the business grows in size and complexity, it falls down.
That is why many CFOs are starting to use data-driven insights to uncover how best to manage their stock.
Utilising real-time data and analytics, along with mobile technology such as barcode scanning, makes organising, managing, and forecast inventory levels much more accurate and efficient.
Systems like Netsuite, IBM Supply Chain, and Cloud Commerce Pro will help you optimise inventory management, which could have major benefits for your bottom line.
6. Contract management automation
Clearly, the best time to start negotiating savings for products and services is before both parties sign a contract. But often companies fail to achieve this, usually because they lack a coherent contract management process.
Due to this, they face a range of problems such as lack of consistency across contracts, cumbersome processing, and supply chain continuity problems.
Digitalising the process with platforms such as Contract Safe, Avetta, or Hot Docs, can revolutionise your procurement process.
They help derive greater value from your contracts, provide a central, cloud-based repository for all your documents, automated notifications alerting you to contract milestones, renewals and chances of renegotiation, and performance monitoring of your suppliers.
7. Shift your focus to TCO – total cost of ownership
TCO goes beyond just the cost of buying in a product or service to considering the total, lifetime cost of owning it.
Establishing this and the value the purchase will bring to your business should be a standard feature of your procurement process as it gives a far better insight into the impact it will have on your business.
It makes for more informed purchase decisions and more leverage for negotiation.
Work with your potential supplier to establishing the TCO as this will bring clarity to the process and will give insight into how they work and how transparent they are prepared to be.
8. Regular reviews, continual improvement
Auditing your procurement management processes will give you greater insight into where the money in your business is going. However, the journey doesn’t end having reviewed processes once, it’s important to instill a culture of continuous improvement.
The digital world is constantly evolving, meaning new products and services arrive on the market every day. Therefore, it is important to stay vigilant, as new solutions could have an even greater impact on your business. As part of this continuous review, you and your business will become better at identifying and implementing tools that can create significant efficiencies, saving you time and money, and ultimately improving your bottom line.