We all know the old adage in business – that you have to spend money to make money. But with 79% of procurement professionals stating that their number one priority is cutting costs, this phrase needs a little updating to properly reflect modern procurement.
You need to spend money to save money.
To some businesses, this may seem like a bitter pill to swallow, but really, all we’re talking about is investing in your procurement strategy.
Read on to find out five ways smart investment can be used as a cost control technique that can improve quality and that help your procurement process flourish.
- Invest in Training
- Implement an eProcurement System
- Supply Chain Consolidation
- Identify Primary and Secondary Sourcing
- Consider Outsourcing
In a recent survey of Chief Procurement Officers (CPOs) by Deloitte, talent was identified as one of the greatest factors that drives procurement performance. Makes sense, right?
As advances are made in technology and sustainability, new products, materials and services are continually entering the market, and so procurement professionals must continually learn and adapt in order to make cost-effective purchases.
Not only is change impacting what procurement professionals buy, but also how they buy. A multitude of digital systems offer the chance to take your procurement online, but without the continual training, it is impossible to take full advantage of this technology.
Training is key then. But, despite this, investment in training remains low, with 25% of CPOs spending less than 1% of their budget on it in 2017. In 2011, this number stood at just 5%, demonstrating more and more CPOs are under-delivering on training.
Aside from providing your team with the knowledge they need, training is also an important tool for motivation, with 76% of employees rating career growth as one of their top three non-financial motivators.
With so much to gain, ensuring your team have the training they need to exploit new procurement technologies and techniques is a must.
What makes up your procurement spend?: Purchasing? Employee wages? Delivery costs? It’s likely that all of these elements spring to mind.
What about the cost of paper, or the postage, and the time you spend on paperwork? As with any business, procurement budgets suffer from all the little things that add up. These are often simply thought of as the cost of business, but that does not have to be the case.
Moving manual processes online with a digital system is a great way to make your buying more cost-effective.
By using a digital platform, you have everything you need, right at your fingertips. This reduces the time spent looking for those wayward documents, improves your transaction speeds to save money, and cuts down on human error.
Nearly £90,000 is wasted each year by the average business as a result of supply chain friction. Incorrect invoices, misplaced documents and communication confusion all cost time and money; and the more suppliers you use, the more difficult it is to collate everything you need to keep your budget on track.
Supply chain consolidation is one easy cost control technique. By limiting the number of suppliers to a select few, you are better able to define a working relationship between them and you. The more you work with these suppliers, the more you learn their systems – and vice versa – improving efficiency.
As well as this benefit, working with a smaller number of suppliers allows you to keep a tighter grip on the purse strings, as you will have more clarity regarding what you are actually spending. This is great for hard-to-track but costly services such as printing.
When using a large number of suppliers, you may find that the competition provides a lower price point for what you’re buying, but that the indirect spend of areas such as storage and distribution skyrockets. No wonder, then, that reducing indirect spend is a top focus for 70% of procurement professionals wanting to control costs.
You should aim for as small a supply chain as possible, but remember, having a contingency plan is key to controlling costs. With this in mind, a good first step is to divide your current supply chain into your primary and secondary sources.
Primary sources will fulfill the bulk of your purchasing and should be determined by their cost-effectiveness, quality, and speed of service. On occasion, you may find that one of your sources begins to raise their prices, amend their terms, or are unable to meet your deadlines. Whether this is a one off or a regular hindrance, it’s important to have an alternative in place.
With secondary sources already defined, your team will be clear on who to turn to in these instances. This saves you sourcing a new supplier last minute, and results in minimal impact to your schedule, helping everything run much smoother.
A simple way but useful way to make these divisions is by applying the 80/20 rule to look for the 20% of your suppliers who provide 80% of your purchasing.
Furthermore, ensuring you have a diverse pool of suppliers to choose from can increase return on investment by 133%, so finding the right balance between a consolidation and diversity in your supply chain is crucial to cost control.
Outsourcing can be something of a taboo word in procurement across the country. It’s understandable to feel wary about handing over responsibility to an external organisation and loosening control on key services.
When used correctly though, outsourcing can lift procurement strategies and allow your team to focus on more pressing responsibilities. Outsourcing is best used for sourcing low value, high quantity products that suffer greatly from indirect costs.
Outsourcing your print is a good example of this, allowing your business to benefit from every cost control technique mentioned in this blog.
By outsourcing you get...
- Access to industry experts with the latest training in their field.
- Digital platforms on which to track your spend and manage stock.
- The chance to consolidate whole areas of your supply chain to a single supplier.
Alongside all of this, outsourcing often provides a cheaper price point.
With these five cost control techniques, you can save time and money in your procurement strategy. To learn more about how you can start improving your procurement savings, download our free eBook, The 4 Stages of Procurement Savings.