When it comes to purchasing, most organizations are afflicted by a number of inefficiencies. Money is wasted. Fraud is rampant. Cash flow problems materialize. Employees are demotivated.
Believe it or not, over half of an average company's expenses - 51 percent - aren't really scrutinized, meaning purchasing managers don't know if they're getting a good deal on those items. This results in a loss of $14 million each year for the average organization.
This, of course, takes an enormous bite out of the bottom line—and is completely unnecessary.
By polishing your procurement strategy and investing in systems that make it abundantly clear where money is flowing and who’s spending it, you can gain full procurement visibility and start down the path toward increased profitability. Once you’ve unlocked 100 percent procurement visibility, you’ll gain new insights that make it that much easier to fully optimize your organization’s spend management efforts.
Here's How an Effective Procurement Strategy Can Help Improve Your Bottom Line:
1. develop realistic financial goals
If you don’t know what you’re spending and where you’re spending it, you won’t be able to improve your procurement efficiency—it’s that simple. Non-core spending accounts for up to 40 percent of the average organization’s revenue. Unfortunately, most companies only scrutinize about half of those expenditures. This is due to the fact that tracking spending across an organization is quite difficult for companies that haven’t yet migrated to a modern e-procurement solution. Once you’ve gained full visibility into your procurement process, you’ll be able to see where you need to invest your energies the most to reduce your expenses and increase profitability. You can then set realistic goals and come up with a strategy that puts you on track to meet them. The better your procurement strategy and the easier it is to stick to, the higher your savings will be.
2. curb rogue spending
In a perfect world, procurement managers wouldn’t need to worry about unauthorized or maverick spending. Unfortunately, according to one report, 54 percent of employees say they’ve gone rogue at least once before, deciding to buy something without getting proper approval. This is a big problem because rogue spending can quickly blow carefully planned budgets and companies are forced to somehow absorb the expenditures. With a streamlined procurement strategy, you’ll gain insight into your process and will be able to rein in rogue spending significantly. Believe it or not, a 5 percent to 10 percent reduction in rogue spending can translate into millions of dollars in annual cost savings for the average large organization.
3. get the best deals
Companies that rely on old procurement strategies—whether they are paper-based or run on spreadsheets—have a very difficult time determining if they are stretching out their dollars as much as they could be. Full procurement visibility enables you to know that you are benefiting from the most favorable payment terms and the lowest prices for high-quality products and materials. If, for example, you find out that you’re paying upwards of $500,000 a quarter to a vendor that operates in a particularly competitive market, you should be able to talk prices down—or at least get more favorable payment terms. When you have complete visibility into your purchasing department, it’s much easier to see if you’re taking advantage of all available payment discounts and using your bargaining power to secure the best deals from suppliers and vendors.
4. maintain control of inventory
Visibility into your procurement also enables you to determine, quickly, how much inventory you have on hand at any given point in time. When you have too much inventory on hand, your cash is tied up and the space in your warehouse is occupied. When you don’t have enough inventory, serving your customers in a timely manner becomes difficult. The trick is finding the right balance. With full visibility, you’re able to quickly see where your inventory levels stand.This makes it easier to come up with a procurement strategy that sticks to the right amount of inventory all year long. Let’s say that a new member of your marketing team needs a mobile device. With visibility into your procurement, you’re able to find out whether you have any mobile devices in stock. You won’t buy another phone unless you need to. Quite simply, visibility allows you to keep track of who has what, where it is, and how long they’ve had it. As a result, unnecessary expenditures are curtailed. With a modern procurement strategy, you can rely on your 100% visibility to let you know with certainty what your inventory levels are and when you need to order again. This enables you to stretch out your cash as long as you possibly can—freeing up working capital and giving you the cash flow needed to grow your operations.
5. reduce fraud
Procurement fraud is a significant threat to many organizations. Whether that’s kickbacks, billing fraud, or buying more items than necessary, procurement fraud can drastically hold organizations back. With full visibility into procurement, companies are less likely to experience widespread fraud. Each purchase is easily traceable. Purchasing managers can see very quickly who bought what and when—and determine if those transactions were necessary and authorized. Plus, with strong purchase-to-pay (P2P) rules and a proper approval workflow, companies can preemptively reduce risk and avoid most cases of fraud altogether.
6. gain a more efficient process
Full visibility into your procurement process allows you to see where any bottlenecks in your workflows may exist. Once you identify them, you can change your procurement strategy to fix them. The requisition process sometimes takes more than a week at companies that use outdated procurement methods. With a modern procurement method, the process can take under two days—thereby increasing efficiency and driving competitive advantage. Furthermore, the best workers are drawn to companies that use the latest tools and technologies. When you invest in a modern e-procurement platform, not only does your company become more efficient and cost-effective, but you are also doing your part to engage your most talented workers—and attract very skilled candidates when new positions open up.
By taking a proactive approach to spend management and obtaining full visibility into your procurement process you can eliminate unnecessary expenses and bolster your bottom line.
Learn how to save more money with our guide to Solving Spend Management