In today’s world of economic evolvement, almost every organization is under pressure to cut costs from wherever possible. Procurement has a huge impact on the profitability of the organization, and so, is in prime focus for reducing spends.
Before we actually start reducing the procurement cost, there is need for awareness, analysis, acceptance and acknowledgement for the willingness to change and implement accordingly.
Reducing the procurement cost involves strategic changes, process changes, inventory management and supplier management within the organization. Some of the ways to achieve a sustainable cost reduction in procurement would be:
• Spend Analysis:
One of the effective ways of reducing the cost, is analyzing spends involved in the procurement process. It has been found that organizations having a spend analysis have performed better than those who do not have a spend analysis mechanism. It gives a better insight to organization to perform across cost effectiveness, staff productivity, cycle time and process efficiency.
But it’s easier said than done, as to analyze the spend, you need to collate the data correctly & also all points of data collection should be implemented in a software platform. We have to get rid of input & output of data in an undocumented form & also the data should be collected in soft form which can be read & analyzed by a system.
As the saying goes, training is costly but not to train is costlier. Effective training can improve the bottom line of an organization through reducing expenses. Training not only benefits the individual but also increases the organizations productivity and profitability. The important thing is selecting the right training program helping the corresponding organization in taking right decisions. For example, a procurement professional faces significant challenges while negotiating with the supplier and correspondingly keeping the relationship good. So, to sharpen the negotiation skills, simulations and training can be given to the personnel which will help him to apply the knowledge directly in his job. There are a lot of procurement and supply chain management online courses which can help any organization in imparting the correct trainings.
• Demand and Supply Management:
Optimizing the demand of the procurement is the key piece of the puzzle to reduce the cost. This involves, correct quantities of procurement. As, one of the main roles of procurement is to obtain the services and goods for internal needs, the procurement professional should analyze as if the goods or services is really required or not. So, if consumption is reduced, cost reduction will be incurred significantly.
• Supplier Management:
Managing the supplier relationship and management will help the organization to reduce the procurement cost significantly. For example, restructuring the supplier relationship through collaborations or partnerships can add more value to the organization. Also, exploring alternative supplier is a good way to reduce the cost, provided the current supplier is considered “high price” in the industry.
• Automation and Data Management:
An organization having automated processes and data management will help the organization in reduction of cost. A 360 degree view of the supplier will always help in better negotiation and managing the relationship with the supplier. This will be possible if corresponding data is well managed or the supplier. Automation significantly reduces the manual effort involved in the procurement process and thereby engaging the professional in more of strategic works for the organization. Data management will significantly increase the efficiency of the professional involved.
• Strong buyer and weak disjointed sellers:
Reduction of procurement cost is best utilized when we have an economically strong buyer & the good or service they wish to buy is sold or served by multiple sellers who are remain discreet & there is no cartel formation. In such a scenario, if price negotiation is done using online modes like eReverse Auction then highest savings can be achieved.
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