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Erik Larson writes about the job market, resume improvement, and career advice

7 Ways To Procurement Savings

Written by Erik Larson, Community Blogger | Aug 23, 2017 11:51 PM

Procurement savings not only reduces an organization's procurement costs. They also result in better product prices and improved supplier terms. Here are a few practical ways that a business can employ to save in procurement.

Consolidating Suppliers And Deliveries

By consolidating suppliers and delivery, a business will cut down on the delivery charges as well as the costs of delivery acceptance, saving money in this step of procurement. The costs of processing payments and purchasing documentation will also come down. When consolidating suppliers and deliveries, a business can do the same for the purchasing intervals and requests.

Reviewing The Purchasing Requirements

By reviewing purchasing requirements, a business will be able to procure only the products that are strictly necessary. This step may involve evaluating the catalogs and the stock levels. That is, only purchases from agreed catalogues should be made, eliminating duplication, which oftentimes contributes to high procurement costs. Reviewing the levels of stock will help reduce storage costs. Therefore, by reviewing the purchasing requirements first before procurement, an organization would be able to avoid unnecessary excess costs.

Centralizing Procurement

Centralizing procurement is another way to save in procurement in the sense that it facilitates a more effective analysis of expenditure. That is, if a business is using a devolved structure of procurement, the duplication of purchasing functionalities becomes high. This increases the degree of hidden opportunity. In addition, making use of economies of scale becomes more difficult. On the other hand, a centralized procurement structure reduces supply costs and enhances competition among the suppliers. Strategic management of supplier relationship is also enhanced under a centralized strategy. A centralized system also allows for savings in staffing (due to reduced staffing requirements), technology, and processes.

Assessing The Ability Of Suppliers To Provide Data Feed

This should be done when a business is looking for wholesale suppliers to work with. The supplier should be able to offer data feed to allow for an update of information on the products. A supplier that provides this information facilitates procurement savings through time-savings. That is, with an automatic provision of the data feed, a business won't have to update the information regularly and on its own. The time saved can be used in other procurement functionalities.

Using Working Capital More Efficiently

The manner in which the working capital of an organization is used plays a significant role in the procurement savings. If an organization's procurement managers negotiate payment of purchases properly, they help maintain its viability. Payment systems such as advance payment are oftentimes discouraged during procurement. If inventory is reduced during procurement as part of managing an organization's working capital, it helps contain the procurement costs. In a manufacturing organization for instance, procurement managers can adopt a build-to-order system instead of its make-to-order counterpart as a way to save on procurement costs.

Automating The Purchase Process

Automating or computerizing the purchase process can be costly upfront. However, it helps speed up and simplify the purchasing process, resulting in some procurement savings. This is achieved through reducing the manual efforts and streamlining the process of managing, updating, and sharing of product information with various trading partners in the purchasing process. Remember to train staff too on new cost effective purchasing procedures to enhance their expertise on saving money during procurement.

Reviewing Existing Supplier Contracts

Challenging the existing contracts a business has with its suppliers can also help cut down the procurement costs. It is recommended that a business focuses on relatively old contracts. This could be five years or so and within this period, the economic environment may have changed, providing a concrete ground on which to challenge the contract for price competitiveness. For instance, the currencies may have become unstable or the consumption patterns may have changed. A business should first determine all the cost drivers when reviewing the existing contracts with their suppliers. Doing this helps find out cost drivers that would have a high impact so it is important that thorough research is done to identify them.

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