Cost reduction is often used to describe cost savings made during the purchasing process. However, there’s more to the subject. Cost reduction includes savings achieved through the re-negotiation and updating of contract terms, improvements in administrative and operational processes, and intelligent use of technology and data.
Scroll down to read more about the cost-saving actions that you can implement in the short and long term.
Leverage Technology and Procurement ROI Calculators for Smart Savings
The modern procurement landscape is filled with cutting-edge software solutions designed to streamline processes and generate substantial cost savings. By adopting technology, businesses can achieve increased efficiency while making informed decisions at every point along their procurement cycle.
Quantifying the savings and showing the ROI is important to get buy-in. This is where a well-rounded procurement ROI calculator can be useful. You can input data relevant to your purchasing process using these online tools and software-integrated features, including:
- Annual expenditure on procurement;
- Costs of manual processes, e.g. labor costs and paper handling;
- Number of invoices processed every year;
- Payments are made by check each year.
Review Current Contract Terms
Changing the terms of a contract is acceptable. It’s possible to save money if a contract hasn’t been reviewed in more than three years. You may want to revisit payment terms if some prices have become less competitive. Open discussions with suppliers regarding possible changes in purchasing frequency can lead to volume discounts.
Customer consumption patterns evolve, economic conditions change, and technology develops. Pricing discussions with suppliers are made possible by benchmarking and market research.
Challenge Specifications
First, consider whether you really need certain products or services. Once the scope of the project is established, you can go over the design or specs. Product specifications and packaging can be based on proposals from suppliers or designed with a particular brand or supplier in mind.
Requirements that are based on performance or predicted results make suppliers more competitive.
Eliminate Maverick Expenditure
Maverick spending refers to unapproved purchases made outside of signed contracts. This is sometimes referred to as rogue expenditure or leakage of funds, and can also represent a high percentage of purchases when there is no centralized purchase-to-pay (P2P) process. It could also pose a significant obstacle to efforts aimed at cutting costs.
Challenge Operational Costs
A well-crafted procurement plan maximizes administrative resources, which lowers expenses. Inadequate preparation may result in expensive emergency supplies and elevated transportation expenses. By automating your internal P2P process, you can lower the expenses associated with transactions and documentation.
Review Uncompetitive Suppliers
Benchmarking can be used to find comparable suppliers who are not competitive while reviewing contracts. You can either ask them to lower their prices to match the market, or if that fails you can move that spending to more competitive suppliers.
Active management of suppliers and consolidating the total number are critical to maximizing procurement savings. In order to manage fewer suppliers, a procurement process might become more efficient.
Use the Information You Already Have
A thorough and reliable data set is essential before starting any saving endeavor.
Information on previous purchases and the performance of suppliers can be used to highlight new opportunities and help drive negotiations.
Centralize Procurement
Savings opportunities are hidden in a decentralized structure. The likelihood of duplicate purchases and maverick spending is very significant, even in the case of centralized worldwide procurement. Centralizing the procurement allows for a global sourcing strategy. A global spend analysis tool’s implementation can offer a number of advantages. Reduced supply costs and more supplier competition are the results of a streamlined supplier database.
In Conclusion
Maximizing cost savings through procurement requires taking an effective, strategic approach that leverages cutting-edge technologies while building solid supplier relationships. Procurement software solutions offer numerous advantages, from automating tasks and monitoring supplier performance to streamlining communication channels and improving overall efficiency.
By using procurement ROI calculators, businesses can accurately quantify projected savings and make data-driven decisions about technology investments. Remember that efficient procurement practices go beyond cost savings alone. As evidenced by 83% of global businesses prioritizing customer-centric procurement in 2023, strong and collaborative relationships with suppliers are integral to maintaining a positive reputation and realizing long-term value creation.
Also Read: Building a Robust Procurement Training Strategy: Essential Steps and Considerations
