Strategies To Cut Procurement Cost

If there was a time to take another look at procurement savings as a way to reduce costs, improve margins, increase flexibility, improve quality, take less time and use fewer resources, it is now.

According to the results of a recent survey by Ernst & Young South Africa, in which 267 Chief Procurement Officers and other procurement executives took part, 65% indicated more savings as their top priority. Other areas of concern pointed out were high inflation in many emerging markets and finding new ways to contain costs.

The global economic scenario is now forcing companies to reduce costs on a sustained basis to improve bottom-line profits. Although procurement costs are sometimes considered as “fixed” and much more inflexible than salaries and bonuses to manage, they are one of the few areas in an organization that still provides ample opportunities to reduce costs and improve profits.

The key to a sustainable reduction in spending is to strike the right balance of focus between supply and demand activities in an organization. Considering the opportunity below for both demand and supply will assist organizations in identifying significant savings in a structured way.

Unused value
Interestingly, even as many businesses have been through the cycle of analyzing their spending, putting a category management structure in place, and then implementing spend management tools to control it. There are many organizations that have barely touched on indirect spending. No one can argue against a focus on direct, but with a third of all spend on average on indirect products and services, it represents a significant source of untapped value.

Procure to pay
The roadmap to technology can be a challenging one with obstacles along the way. However, there is a definite sense now that procurement technology is becoming mainstream. Customers are aware of the key attributes to look for in a solution-going beyond a shopping list of efficient requirements for data of what has actually been delivered.

Explore alternative suppliers
If you’re working with a supplier that’s considered “high priced” within its industry, consider alternative sources of the products or materials. Pay attention to the factors like ease of order placement, on-time delivery, product quality, and even the condition of the packaging when it arrives at the dock door. And if you can get the same perfect order service from the new supplier, consider making the jump.

An effective supplier management framework that fittingly lines up risk, effort, and reward is a key enabler of ongoing sustainable value creation. The framework needs to include sections i.e. strategic, operational, and tactical performance management structure and clear communication of organizational accountability and responsibility.

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Credit: FreeDigitalPhotos.net by Stuart Miles