Procurement optimization is finding ways to reduce costs and improve efficiency in your procurement process while maintaining the same level of service or quality. Procurement optimization can be done by optimizing your purchasing processes and supplier networks.
We have found that many companies are not getting the maximum return on their procurement spend, which directly impacts their bottom line. Our approach is to help you identify where the most significant opportunities for savings exist, then provide a solution tailored to your needs and strategy.
A strategic approach to procuring equipment and materials that help you efficiently achieve financial goals will ultimately lead to improved productivity, lower cost structures, greater employee satisfaction, and improved organizational effectiveness.
1. Define Your Procurement Optimization Goals
To achieve your goals, it’s important first to define them. Ask yourself the following questions:
- What are my overarching goals?
- What specific behaviors will help me achieve these overarching goals?
Once you have a clear vision of what you want to accomplish, focus on developing specific plans for achieving that goal. For example: if your overarching goal is to increase spend with small businesses, identify opportunities when new small business suppliers can be introduced and onboarded and how you will discover potential small businesses offering products and services you need..
2. Determine Your Procurement Needs
The first step in procurement optimization is to determine your organization’s needs. This involves understanding the following:
- What are your business goals? What do you want to achieve with these purchases?
- Who will benefit from these purchases (e.g., customers, employees, and shareholders)? How much does each group need or want this product or service?
- Which suppliers can provide the best value for money given their pricing strategy, quality standards, delivery time frame, and other factors such as market conditions at present (i.e., demand)?
- What factors contribute to or detract from how a supplier fits your high-level goals?
3. Zero In on the Suitable Suppliers
Finding suitable suppliers is critical in procurement optimization. You want to zero in on those best suited for your needs, budget, location, and goals. In addition to these factors, consider the industry you operate in and your business model.
You’ll also want to take into account the level of quality and innovation that each supplier has. This will ensure you have access to the latest technology and products, ultimately impacting your bottom line.
4. Analyze the Total Cost of Ownership (TCO) of Purchases
TCO is the total cost of owning a product or service, including initial ownership costs and other ongoing charges. The TCO includes everything from depreciation to operating expenses to maintenance.
TCO is important because it allows you to compare the relative value of different options across your business. For example, if you are considering purchasing a software package that will cost $1 million over five years. However, it has a five-year break-even period after which you could save $50k in IT support costs, so choosing this option would be more attractive than one with no expected savings within the same timeframe.
5. Verify Data for Accuracy and Consistency
Verifying data for accuracy and consistency is a critical step in procurement optimization. This can be done by checking the validity of your existing data and ensuring that it is consistent across different sources. To check for accuracy:
- Use an established fact-checking tool to verify that all relevant information has been entered correctly into your system.
- Ensure you have enough clarity around correct or incorrect data via a thorough audit process with internal stakeholders before proceeding with any modifications or changes in your systems.
6. Use Automation to Reduce Error
Automation reduces the time required to complete tasks, reducing human error and fraud.
Automation also makes it easier for procurement professionals to manage large volumes of data, which can be helpful when trying to optimize your supply chain or find new ways of doing business with suppliers. It can also help you streamline your processes. By creating systems that automate specific tasks, you can reduce the time and effort required to complete them. Fewer people will be needed to manage those tasks, reducing human error and fraud. Automation makes it easier for procurement professionals to handle large volumes of data, which can be helpful when trying to optimize your supply chain or find new ways of doing business with suppliers.
7. Invest in a Sophisticated SRM Solution
A sophisticated procurement solution can help you achieve your strategic goals. It will provide a comprehensive solution for procurement management, which is an essential part of every organization’s business model. A good procurement management solution should have all the tools needed to manage the entire process from source to pay. From pre-qualification through negotiation and award, or even the post-award phase when it comes time to deal with disputes or other issues that may arise during the lifecycle of a contract. This can include everything:
- Buying goods or services on behalf of the company
- Negotiating prices and terms with suppliers
- Processing bids from potential vendors/suppliers and contracting them as needed
- Managing ongoing relationships with those vendors through regular reporting
- Tracking performance against plan objectives, such as meeting budgeting targets set by senior management team members who manage budgets across multiple departments within an organization like the finance & accounting department.
8. Set Clear Goals and Learn How to Achieve Them With the Right Tools and Suppliers
You can’t set a goal without knowing what the problem is. Solving problems involves:
- A problem definition
- A goal definition
- A solution that fits the purpose of solving the problem and achieving your goals
A solution that can be realistically implemented and modified to adjust to changing needs. A solution that is valued by the people who will use it
The procurement process is a critical, strategic element in business planning, and it takes thorough planning, well-done research, and a lot of trial and error to build a fool-proof procurement process.
At the end of the day, your aim is to achieve strategic goals. The good news is that you can use these tips and the latest tools to find new suppliers and improve your business’s procurement efficiency.