The price of purchasing, and operating, is on a stable rise. Commercial enterprises have started to regard procurement management as their top priority since it will take up a large share their overall invest. Considering most companies still hold on to their manual procurement practices, the full revamp of their procurement capabilities is important to keep pace with company needs.
In order to receive the basics right, organizations need to implement a good procure-to-pay progression and embrace the proper technology strategies. But, just revamping the process and employing a top technology product won’t create the procurement function best-in-class.
Thus, what will it take?
The key may well be different from one organization to the next, but there are some procurement best practices which couple of leading corporations have used over time. Here is an outline of 5 procurement best practices which, when implemented properly, can substantially lower costs, improve process efficiency, and have a positive effect on the cost income ratio.
1. Cloud-based procurement tools
Taking procurement digital is a critical step in making procurement activities future-ready. Digital procurement strategies help teams reduce the repetitive operational facets of procurement, freeing up team members to concentrate on strategic roles.
As technology will continue to become an essential part of our daily activities, an entire digital transformation for procurement actions is inevitable. High-performing organizations are actually leading the pack on digital procurement habits.
Here is what competent digital procurement techniques like Gatewit Procurement Cloud Software is able to handle:
Dealer Management – Onboard, maintain, and handle vendors in an easy-to-use, efficient platform.
Invoice Approval – Approve your invoices on the go & perform fast three-way matching.
Purchase Requests – Fluid forms enable you to capture, approve, and keep monitor of purchase requests.
Purchase Orders – Issue POs and generate orders instantly from approved purchase requests.
Spend Analytics – Generate actionable, data driven insights from the purchasing related data of yours.
Integrations – Connect your procurement cloud along with other essential finance software systems.
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2. Spend Transparency
Making procurement capabilities transparent would be the baseline to unlock possible savings and make headway into achieving operational excellence. Spend transparency is actually the key to ensuring accountability and minimizing possibilities for fraud in the procurement process.
Measures to make sure invest transparency in the procurement process:
Define and implement procurement policies properly
Monitor and document every step of the procurement process
Identify as well as manage a summary of approved supplier lists
Establish fool-proof procurement contracts
Conduct frequent audits By using the strength of data analytics and automation, organizations are able to eat away dim purchasing and maverick spend. Procurement technology has much better visibility into the procure-to-pay cycle.
3. Supplier engagement
Every organization has a number of suppliers who provide important items, offer special services, perform routine maintenance, and complete one-time urgent repairs. While calling a particular vendor to order a merchandise or even repair a faulty machine may seem simple, the process of qualifying and controlling a supplier is actually anything but.
The technique of identifying a potential supplier, onboarding the vendor, scheduling the service, obtaining the invoice, and paying the vendor is actually overpowering. If managed physically, just a simple practice of distributing one vendor invoice is able to take in several hours.
Supplier management tools offer a set of unique features to help improve the source-to-contract process and boost supplier engagement. eProcurement tools provide comprehensive merchant dashboards, pre-made contract templates, digital procurement processes, and extensive integration with accounting management systems.
A company can enhance supplier engagement by:
Generating win win situations as well as trust
Treating suppliers as strategic partners
Monitoring supplier performance with certain KPIs
Enabling collaboration and communication with vendors ☛ Free Guide: The Ultimate Guide to Managing Remote Procurement Teams.
4. Optimized inventory
As profit margins shrink in specific industries, businesses are continually searching for ways to control their spend and greatly improve the profits. Their main focus is the procurement process. Thus, procurement teams need to frequently review their inventory and attempt to make sure they stay optimum.
Best-in-class groups seriously consider their inventory since the’ real cost’ of holding inventory is far higher compared to the cost of ordering items. The rule of thumb for holding costs is between twenty and 30 percent. And it is not just consumable products that go bad over a period of time-everything from consumer electronics to clothes are actually subject to risks.
The key reason for out-of-balance inventories is very poor planning and forecasting. Procurement leaders around the world are slowly realizing the power of better data-driven insights. Almost 50 % of respondents in 2018 Global CPO survey confided they are leveraging intelligent and advanced insights for cost and inventory seo.
Below are a few issues organizations need to examine whether their inventory is optimized:
What are the ratio of operating inventory in terms of safety, replenishment, and excess inventory?
Does the procurement team over or under-purchase any products/services?
What is the best frequency of purchases?
Are a number of buy requisitions as well as orders in sync with inventory levels?
5. Contract Management
Although procurement teams try to negotiate potential savings in the sourcing stage, they never totally unlock the importance. Even though the reasons vary, the most common issue is a disorganized agreement management process.
A recent report on contract relief suggests that about eighty one % of organizations don’t make use of any Contract Lifecycle Management (CLM) application. To be a result, they confront a number of soreness points like lack of consistency throughout contracts (fifty three percent), troublesome processing (45 percent), and supply chain continuity troubles (thirty six percent).
Organizations are able to stay clear of these procurement pitfalls by moving their contract management system to the cloud. When contracts are created, saved, and maintained in a centralized data repository, organizations can leverage their spend optimally, reduce expenses, and also mitigate risk.
Agreement management automation will provide organizations with:
Central repository: Store all documents (riders, amendments, etc.) at a cloud database that is accessible from anywhere
Configurable interface: A highly scalable and customizable interface which may be tailor-made to fit about company requirements Automated notifications: Trigger automated alerts to highlight contract milestones, renewals, and chances for renegotiation.
Performance monitoring: Track delivery time, product quality, pricing fluctuations, and adherence to purchasing terms/policies