Businesses are always lookout for ways to trim out their cost base. However, a vast majority of the companies only succeed in cutting down a small portion of the cost as they only scratch the surface of procurement efficiency. Companies that dwell deep into the procurement function can realize dramatic saving opportunities. Such procurement savings directly impacts the company’s revenue.
For a majority of companies, purchasing accounts for a significant percentage of the procurement costs. Therefore, it becomes essential for them to buy and spend better to increase procurement savings. Here are some tips that can help companies to increase procurement savings:
A company can strategically buy better by negotiating better terms with the supplier. This can be achieved through optimized negotiation strategies and supplier rationalization. To negotiate better terms, a buyer must prepare for the negotiation by analyzing supplier price and cost, delivery time and cost, and service response time. Such an analysis gives them a fair idea on the prevailing market prices. Also, companies can buy better by practicing supplier rationalization. A quick ABC analysis can provide insight into the kind of supplier to engage with during negotiations. In addition to that, buying from one supplier facilitates the transaction and qualifies for a volume discount.
Leading companies should examine spending across product categories and identify unnecessary spending. They do so by monitoring fragmented purchasing across multiple vendors, maverick spend, and other spend leakage issues. Apart from this, companies must constantly analyze their spend on R&D to control overspending. Finally, to save on procurement costs, companies must understand the total cost of ownership of an item. The cost involves the purchasing cost, along with frequent maintenance cost, administrative cost, installation cost, operational cost, and other long-term expenses.
Organizations can achieve outstanding procurement savings by buying and spending better to save on procurement costs. After identifying better buying and spending strategies, it is essential that organizations stick to them and improve those strategies to acheive procurement savings constantly.
To know more about how your organization can increase procurement savings: