Procurement is often a massive part of a business, whether you’re taking on services or working with other businesses to buy parts or import products.
Procurement doesn’t always get the attention it needs in terms of business planning. This doesn’t make a lot of sense, since a big chunk of your revenue is probably spent on procurement. If you’re not giving it some serious forethought, it’s likely that you will make mistakes that cost you a good amount of money.
A good procurement strategy, on the other hand, can potentially yield you more efficient productivity, better purchase price, and hopefully grow your business as a result.
This guide is aimed to give you some tips on improving your processes and spotting the red flags in your procurement practice.
Building Strong and Long-Term Partnerships
This should be one of the top priorities for any business. Good suppliers do not grow on trees. Finding suppliers that can meet your expectation from various aspects is no easy task. That’s why it is important for you to build a strategic relationship with your top tier suppliers and grow with them in your business journey.
A functional partnership depends on the mutual benefits the companies can create together. Knowing your suppliers’ objectives and limitations is the first step to create a functional partnership. Does your supplier need regular update on your procurement forecast? Does your supplier have seasonal limitation on the capacity it can offer? What is the sweet spot or specialty in your supplier’ offering? Knowing these questions and establish proper rule of engagement can help you build a long-lasting functional partnership.
Be Wary of Vendors Overpromising
There is old saying, and it is sadly almost always relevant. If it sounds too good to be true, it probably is.
Suppliers want your business. As such, they’re likely to promise you a lot initially to try and get you to work with them. This can be used as a good tactic to get great rates, but you need to be cautious. Some unscrupulous suppliers will actually be leading you into a trap of hidden costs.
Thorough negotiations, and the use of a strategic sourcing platform, can help a lot when it comes to checking that your supplier is trustworthy.
Cost isn’t the only criteria, either. Make sure you are looking for a supplier with a strong track record and plenty of references. This can allow you to avoid many of the risks that are inevitable with procurement.
Hire Specialists
Procurement is often one of the many hats worn by business owners or executives. Some people have a perception that it is a part of an accountant’s job, but this is far from the truth.
Procurement specialists and professionals have their own skill sets, and just adding procurement to the tasks of your clerical team will not yield the best results. In a big enough business, a procurement professional can more than justify their salary.
Procurement pros have industry knowledge as well as an ability to negotiate and vet potential suppliers. They are often good at analyzing data and are usually great at talking to people. A lot of the skills can help you to save money, both directly, by renegotiating costs, and indirectly by avoiding the cost of having to fix issues with poor supplier contracts.
Create Incentives for Your Suppliers
Many businesses treat their suppliers in a way that doesn’t really encourage them to perform at a higher level. One of the most simple and effective tips for improving procurement is to increase the incentives for your suppliers.
Suppliers might be willing to give discounts for early payments. Many OEM suppliers are used to being paid late. Some accountants see it as smart to continue to delay their payments until the very last minute. This is standard practice for improving cash flow, but it might not improve supplier relationships.
Try to negotiate an early payment discount with your suppliers. This can increase their efficiency, and improve turnaround times, as well as helping you to build a stronger relationship while saving money. Unless your business cash flow is in big trouble, it makes sense to pay quickly if it saves you money.
If you use an automated procurement system and OEM software to track your supplier relationships, it can make it quick and easy to get your payments sent in the most efficient way.
Make Your Process Simpler and More Streamlined
There are so many software solutions for all kinds of enterprise now. Procurement is no different. Whether you are using a CRM to manage your suppliers, or full supply chain management software to track every area of procurement, it is vital that you do not make your system convoluted and unnecessarily difficult.
It can take more work up front, and more money, to set up an adequate software system. In the long term, it’s an investment for your business. It can save you money and give you access to better forecasting as well as improved procurement processes and supplier relationships.
Centralize Your Supplier Database
Creating your own centralized supplier database can seem like a huge task. It’s certainly not easy. However, using a decentralized database can leak cash or lead to using outdated information. Your procurement staff could also end up using outdated agreements or paying more than is necessary. Decentralized databases mean you have little control.
A centralized database, on the other hand, comes with many benefits.
It allows you to analyze budget and where money is being spent within your business.
It lets you create simpler orders, or order in a more efficient way, such as combining multiple supplier orders into one.
You can evaluate all of your vendors to try and get a better price.
Your contract negotiations can be far better. Based on the fact you can prove that you pay quickly, or a history of providing big orders, you might be able to negotiate with your vendors.
It may also be a way to compare vendors and the service they have provided over the years.
They say that knowledge is power. If you’re using a decentralized system, then you’re trusting that knowledge to be correct. Though building and maintaining a centralized supplier database can be more work, it has a number of rewards for businesses, and can grow with you as your business gets bigger.
Conclusion
Many businesses are failing to make the necessary investments in their procurement. Whether this means improving your CRM, implementing better software solutions or even overhauling a whole department of your business to increase the procurement staff, the ends justify the means.
Some tips are far simpler to implement than the others, so you’ll need to make a choice based on the size of your business and what your ambitions are, but all of the six tips in this guide will allow you to make steps towards better procurement.