The banking sector is still affected by the great depression witnessed a decade back. Numerous procurement cost including real estate, ATM maintenance, transaction and card processing services, collections, risk management, security services, and in-branch marketing are burdening the banks bringing down their profitability. To remain competitive and sustain in the market banks and financial institutions are looking for various cost containment strategies. The banking sector is looking for innovative ways in their procurement process to control the procurement costs.
Pooling Resources for Cost Containment
The banks and financial service providers have come up with innovative solutions to pooling of resources for a particular line of business, allocating a dedicated entity to manage the processing. Pooling of resources to share infrastructure and operational costs across the organizations can lead to massive cost savings and at the same time increase the investment efficiency by making capital-intensive projects more viable.
Vendor Consolidation or Supplier Rationalization
Vendor consolidation is one of the procurement strategy used by banking and financial services industry to achieve cost savings. Banks look forward to reducing the number vendors across geographies and business units to focus on selecting preferred vendor per spend category. Implementing such vendor partnerships allow banks to increase their operational efficiency and productivity and thereby save valuable time and money. Additionally, such procurement cost reduction strategies eliminate the need for lengthy training procedures for the staff and also ensure compliance with the procurement process.
Investment in Technology
The financial industry has always been resource intensive and over-reliant on human expertise. Although the majority of the banks invest heavily in ERP systems, the usage of technology is still limited mostly due to lack of people who understand such technology. Blockchain technology is the next big thing in the financial services industry which can eliminate lengthy transaction processes along with costly third-party verification. Such technologies can rapidly increase the efficiency of the procurement process within the financial industry.
Adoption Of Public Cloud Services for Digital Banking
Banking service providers are turning towards applications and storage space available in the public cloud eliminating the need to invest in dedicated hardware and software resources. Opting for various engagement models such as SaaS, PaaS, and IaaS, banks can digitize their services without having to maintain data centers.
What are cost-saving strategies in procurement in banking
Supplier Negotiations and Consolidation:
Banking institutions can achieve significant cost savings by negotiating better terms and conditions with their suppliers. By leveraging their purchasing volume and consolidating procurement efforts, banks can negotiate lower prices, improved payment terms, and reduced service fees. This approach can be particularly effective for commonly purchased goods and services, such as office supplies, IT equipment, or facility maintenance services. Strategic supplier management and partnerships can lead to long-term cost reductions.
Technology and Automation:
Implementing technology and automation solutions in the procurement process can streamline operations and reduce costs. Procurement automation tools, such as e-procurement systems and e-sourcing platforms, can help banks optimize supplier selection, purchase order processing, and invoice management. By automating routine tasks and reducing manual intervention, banking institutions can not only save time but also minimize errors and improve compliance with procurement policies, ultimately leading to cost savings.
Supplier Performance Evaluation:
Regularly evaluating supplier performance is essential to identify underperforming vendors and assess the quality of goods and services provided. Banking institutions can use key performance indicators (KPIs) to measure supplier performance in terms of cost-effectiveness, quality, and delivery timeliness. By holding suppliers accountable and maintaining transparency in the procurement process, banks can drive suppliers to continuously improve their services and, if necessary, replace underperforming vendors with more cost-effective alternatives.
Read more about the procurement process in the banking services market along with pricing strategies, supply market landscape, pricing trends, negotiation strategies, procurement cost reduction strategies, and procurement insights in SpendEdge’s upcoming report on the global banking services market.