The most common procurement challenge businesses face today is manual data entry - a long, labor-intensive process vulnerable to human errors. In 2019, half of the procurement functions ran on legacy tools such as Excel. Such an approach leads to a lack of transparency, high risks, and high costs. Only the digitalization of the industry with the help of procurement software can mitigate these challenges.
In the same way, COVID-19 has left a unique imprint on all areas of enterprise. But amid new waves and strains and recurring supply chain disruptions, procurement managers' key concern is the strategies to overcome this crisis.
In general, the cost of procured goods and services accounts for up to 70% of the company’s total costs, so company directors are well aware that optimizing procurement results in increased profits. Optimization of procurement is the process of organizing and regulating procurement processes that allow you to reduce procurement costs, including production supply costs.
So, how can employees best avert future problems, protect their supply chains, and boost the business to recover its recent losses? To organize procurement management properly, it is necessary to implement a specific list of tasks, which will nip the potential issues in the bud:
Leveraging group purchasing, you can reclaim your valuable time, find new cost savings, and focus on leading the team. One of the ways to do this is to join a group purchasing organization (GPO).
A group purchasing organization combines the purchasing power of collective businesses to leverage better pricing, service levels, and account representation from suppliers. In addition to the savings on materials, components, and services, GPOs expand your network so you can cooperate with others to combat common issues. Here are some ways GPOs can get you the relief you need.
Create a vast and reliable supplier management system. It continuously monitors and rates supplier performance checking whether they meet the necessary standards. In this way, you have access to a supplier base of greater size and higher quality. Similar to how salespeople use CRM to maintain their clients’ database, make use of modern procurement software to keep all your contacts updated and in one place accessible to all stakeholders.
You can expand your suppliers’ list only if you maintain data quality and integrity across the board. Moreover, if you keep your database up-to-date, you can analyze supplier performance and filter out underperforming suppliers:
GPOs frequently conduct conferences, meetings, and other events where procurement professionals can talk to others, discuss strategies, and exchange ideas for the future. Such conversations promote the creation of new ideas, new methods, and better solutions. For example, one of the most important events is the World Procurement Congress that usually takes place in October each year.
Enlarging the professional community implies regular meetings with the representatives of different companies, industries, and cultures. During such networking activities, you can expand your list of suppliers, get a better overview of market trends and best practices in the industry. As a result, you will have an opportunity to look at your issues from another angle and have access to new resources and new solutions that will be fundamental in driving value to the business.
Today’s integrated supply chains need to move beyond traditional cost reduction tactics and explore alternative ways to support the system. Thus, executives are increasingly considering re-defining their existing supplier relationships with the help of Supplier Relationship Management.
The main objective of SRM is to establish two-way, mutually beneficial relationships between an organization and its suppliers. Below you may take a look at the helpful tips on how to build and improve relationship-based procurement:
Buyer supplier relationships shouldn’t rely on financial transactions only. Mutual trust and loyalty matter a lot as well. Keep suppliers informed about your plans, strategies, and changes so that they can adjust their processes for better cooperation. Organizing regular sync calls with your most important suppliers will also help build relationships and get better terms for your purchases.
Fulfill your part of the agreement the way you want suppliers to perform timely actions on their side. Be sure you make payments on time and inform the supplier if you face some problems and have to put off the payment.
Sometimes it is good to sign an agreement with a supplier that has the lowest prices on the market or provides you with discounts for early payment. But purchasing managers shouldn’t chase the suppliers with low costs only. Sometimes it’s better to pay a little more for a better service that pays for itself because it saves time, ensures disruptions are dodged, or you can trust the supplier to deliver directly to your customer.
Investing in e-procurement software will enable your team to easily add suppliers and popular items to catalogs, diversify your supplier base, and get the highest value goods for the best cost.
Consider having the technology to support such components as invoice tracking, supplier onboarding and communication, data management, and more. In this way, you will have the ability to reduce supplier risk and cut administrative costs associated with managing the different suppliers you cooperate with.
For example, if you are using Proqura as your tool for SRM, ensure that you fill out every detail of the Supplier Profile during supplier onboarding or data transfer from another software. It will help you retrieve crucial supplier data and maintain relationships.
As for inventory, leveraging technologies helps eliminate overspending and duplicate purchases and offers full real-time visibility of your inventory. This kind of transparency enables you to reduce redundant spending and minimize excess stock.
Procurement technology – mainly divided into Source-to-Contract and Procure-to-Pay – became the cornerstone of managing the procurement of goods and services, suppliers, and budgets. For example, most modern procure-to-pay software allows 3-way matching to ensure your suppliers bill you correctly.
More innovative technologies are entering purchase order management every year to streamline it at every possible step. Some of the robust technologies that procurement departments can embed include:
Blockchain will continue to expand and develop in 2022. The technology makes the supply chain more transparent and protects sensitive information, eventually lowering the chances of disruption and providing customers with a more reliable service.
Adjusting to the COVID-19 environment led to the broad incorporation of cloud technology. Cloud-based applications help companies lower costs and scale their operations thanks to enhanced real-time information sharing and better decision-making. Most procurement automation tools offer cloud-based data storage so that you have everything in one place instead of being scattered across hundreds of Excel sheets.
In 2022, procurement professionals will increasingly utilize voice-enabled bots to reduce Helpdesk support hours and costs. This will improve operational efficiency and free up the agents for more value-adding tasks.
Lean procurement is relevant for all industries, and applying “lean” to procurement can yield significant operational and financial results. Basic “lean” principles determine the lean procurement techniques that focus on adding value and typically require eliminating waste and cost.
Implementing lean procurement techniques will bring you such benefits as:
Here are a few basic steps that will help you get started:
With robust software, you will get data to spot potential problems and bottlenecks before they start affecting your business, improve your employee’s performance, and build a better supplier network.
We spoke a lot about data in this post. Why? Because data contributes to the transparency of the procurement environment while also allowing buyers to make more informed decisions based on facts. To improve your operational processes and better manage risks, take into account the following principles:
The Experian statistics show that only 44% of organizations trust their data in critical situations. Every second organization says that a lack of confidence in data leads to an increased threat of non-compliance and regulatory penalties, and consequently, a downturn in customer loyalty. Thus, the first step is to refine the data for analytics to provide the desired value.
Nowadays, many procurement teams are deploying AI-enabled data analytics to form meaningful insights and aid effective decision-making. Here are three ways your procurement team can use data analytics to streamline purchasing process:
Spend data analytics can provide information on how, what, where, from whom you are procuring. Such a deep insight into your purchasing process strengths and compliance with the procurement policies will surely improve your spend management.
Track your procurement team’s spending data and analyze spending to gain valuable information and make financial operations more visible. Companies’ experience proved that cost analysis contributes to mature procurement processes and robust supplier relationships.
It is convenient to keep data about all your operations in one electronic catalog. Here, an audit trail is vital to any process that involves your operation’s finances and assets. Companies of all sizes and cultures can benefit from a robust audit trail from small businesses to global conglomerates.
For procurement, in particular, embedding a clear audit yields the following benefits:
Having a complete audit trail proves that information in your catalogs is valid, your business is compliant with the standards, and you can manage risks more efficiently.
There’s an obvious connection between purchase order management and financial sustainability. Effective procurement has proved to make the difference between a company achieving astounding success and collapsing completely.
That’s why, when you bring all these concepts together into a single optimization process, that’s where you see real profits. A fully operational purchasing process will also allow you to cut costs, improve buyer-supplier relationships, make better data-driven decisions, enhance overall performance and boost your business.