Cost Control | Tips for Making Smart Procurement Decisions

  • Jan 22, 2019,
  • By Jeff Kennedy
Procurement-tips

When you break it down to simple terms, procurement means sourcing what your company requires, at the right time, and at the price. Seems simple, right?  However, you likely won’t achieve this objective through strategic sourcing alone and will need to ensure that you collaborate, investigate, and in some cases, reevaluate your processes and procedures to ensure that you’re getting the most out of your purchases. Whoah, that got complicated in a hurry.

We love the idea of simplicity in business so much that we put the word “Simple” in the name of our solution. Anywhere that complication or slowness can be removed in favor of something easier, well, we’re all for it.

But when it comes to making procurement decisions more simple it is important to recognize that these decisions literally have an effect on the bottom line. Spend too much, wait too long for delivery, have logistical challenges…all of these things can negatively impact the business in the place where the stakes are at their highest: real money.  That’s why making procurement simple is also about being smart.
Here are some tips to help you make smart procurement decisions.

Professionalize the Process

Stop treating the procurement team as simply buyers of goods and services for the company. Align, incentivize, and appropriately staff the supply chain, purchasing, facilities, and logistics teams and if training is required, don’t procrastinate.

Invest in training your procurement professionals and hire managers that have strong communication skills, are strategic thinkers, and can manage supplier relationships as needed. You’ll also want to ensure that your entire staff is trained on purchasing policies and procedures while making it clear that policy should never be circumvented.

Education in business is always a good idea and nowhere is that more evident than in the supply change. Invest in training process development and you will be rewarded with a smoother, more efficient procurement department.

Getting the Best Price

You’re no doubt already contacting multiple vendors, keeping historic records, and examining any line-items to make sure you’re getting the best price.  But it feels important to point out that price isn’t always about raw dollars, and sometimes the improvement of a procurement process or department comes with imparting a different point of view on your team.

For example, some vendors or suppliers may offer a discount for paying an invoice early just as others may impose a penalty for paying an invoice late. Do all of your purchasers know that there are negotiating points other than price they can leverage? And if so, are they properly trained and prepared to take advantage of rebates, service extensions, advantageous terms, and other aspects of the quoting and purchasing process to get the best value possible?

Take Emotion Out of the Equation

A company or individual that you’re familiar with may be great to work with on many levels, but if they cannot deliver on time, lack communication, or simply aren’t the best pricing option available, you’re doing yourself, the company, and your stakeholders a huge disservice. While vendors and suppliers employee salespeople whose job is to build rapport with you and your business, make sure that the post-sale support and account management provided to you meets expectations as well.  There is nothing worse than making a purchase based on the great relationship you had with the salesperson only to see them disappear to their next account when you need them most…with no support in sight.

Solving for this is easy, however, and should actually please the vendor sales representative as well.  Ask early in the process for a meeting or conversation with someone in support. Get a feel and understanding for how you’ll be treated and helped during the course of the business relationship, not just while you’re being wooed for the first purchase.

Risk Management

You must identify which goods and services are crucial to your company and then take the necessary steps to secure those supply chains accordingly. This often comes down to a simple economic decision where lower risks may result in higher prices, or vice-versa.

Your procurement and supply chain management involves managing and sharing risk with your suppliers. This can be accomplished by relegating the risk to your suppliers that are best equipped to manage it, or through through diversification of the supply. But with that in mind it is critical that you prioritize the items you need to have to operate the business on a day-to-day basis and then install an ironclad plan for making sure those items are available when you need them.  You don’t want to be the figurative fine-dining restaurant that runs out of salt and flour during Saturday night’s dinner service.

 

Manage Your Relationships

Purchasing is also about sharing benefits, not simply sharing risks. Passing on risk to a supplier requires more management of the supply chain, not less, and your challenge is to get suppliers interested in working with your organization and to invest in a long-term relationship. On the flip-side of that same coin, you have to manage relationships within your own company as well. This means working with internal stakeholders such as finance, distribution, logistics, and marketing to ensure that everyone is aligned and working toward the same goal of obtaining the best products and services from the best option available.

Don’t forget that managing a supply chain happens as much inside the walls of your office as it does outside the building.

Embrace Change

While change can be nerve wracking, you simply cannot continue to expect to compete in today’s market without updating your procurement processes on a regular basis. Securing your supply chain and ensuring that you’re receiving the best prices and services available is always your ultimate goal. To do so you must be open to the possibility that a new service, solution, or tool might help you reach that goal.  

The status quo may be comfortable but it’s rarely fully optimized.

You should make the time to identify technology solutions that can improve and enhance your procurement process, address your supply chain issues, provide inventory control, and otherwise improve the efficiency of your procurement and supply chain management.

Saving Money

Procurement should allow you to achieve savings by selecting a mix of suppliers that can provide the best terms, products and prices for your company’s needs. Relationships should be severed with those suppliers that cannot provide the required quality levels or prices.

The decision to save money doesn’t have to come at a cost. Being educated about the market, the available options, and what benefits come with your purchase is the best way to reduce cost without reducing quality.

Transparency & Accountability

Your procurement process has to be transparent and those in charge of purchases must be held accountable for ensuring that all purchases meet the standards agreed upon and implemented. With Capriza ApproveSimple, you can accelerate purchase order approval cycles whether they come from Coupa, Oracle Advanced Procurement, SAP Fieldglass, or others.  And, you can also manage your procurement approvals in one location. This enables you to increase business agility, improve user productivity, and have complete oversight of everything from expenses and invoices, to timesheets and absences.

Procurement is rarely one person’s job and for good reason. But with the right plan and approach you can ensure that your team, vendors, and all stakeholders are committed to obtaining the best products and services for the good of the company. Controlling costs and making smart procurement decisions is vital for the success of any business, large or small. By incorporating the suggestions above with today’s technology, you’re setting your business up for long term success.  Contact us now to learn more about bringing simplicity and speed to your procurement processes.

 

Jeff Kennedy

Jeff Kennedy is an active CPA responsible for Capriza’s global finance and accounting operations. Prior to joining Capriza, Jeff held various positions including Corporate Controller at Bitcasa, Inc. (private IP exit) and Accounting Manager at Zynga, Inc.

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