How to improve procurement efficiency? This post outlines five actions that you can implement which will, in turn, improve your procurement performance resulting in increasing savings and efficiencies.
Improving Your Procurement Performance
Prioritize Supplier Relationships
Supplier relationship management, or SRM, is the process of developing and maintaining ongoing relationships between suppliers and buyers. The goal is to reduce risk, increase value, and build trust while creating long-lasting relationships that will benefit all parties involved.
A recent survey by Paystream Advisors found that supplier relationships are most affected by poor supplier data management, poor dispute management, and late payments. In most of the instances mentioned listed in the graph below, the more damaging results are primarily the fault of the buyer.
We wrote a post which outlines five key areas for you to start in order to enhance your supplier relationship management structure and processes – and you can apply these to all of the suppliers that you work with.
Utilize Global Sourcing
The modern world is a global world. In terms of sourcing, using all the resources at your disposal means utilizing global channels and connecting with worldwide suppliers. Value comes in many forms, and it’s up to you to decide which value propositions are most beneficial when it comes to your suppliers.
Local suppliers may provide the value of convenience through location and could inspire customers to purchase from you through the knowledge that they’re helping support the local economy. On the other hand, international suppliers could provide value through monetary benefits of bulk purchasing or through the allocation of materials that are difficult to obtain locally.
The competitive advantage that using international suppliers could provide, via monetary and resource allocation benefits, makes it a strategy that will help your company grow quickly and efficiently.
Strategic sourcing strategies are a clear opportunity for procurement teams and individuals to collaborate and work with senior business executives.
Develop Strong Risk Management Policies
Risks, in terms of procurement performance, could mean the possibility of a key supplier closing a location or going out of business. It could mean that rates skyrocket due to a bad harvest resulting in limited materials. Risks are everywhere and come in many forms which means that strong risk management policies are required to ensure the survival of your business in any number of circumstances.
Susan Avery of Supply Chain Quarterly reports that businesses are relying on luck and sitting procurement risk management in the back seat which “leaves procurement vulnerable in today’s environment, where many companies are in precarious financial positions.” The article reinforces the idea of segmenting suppliers to manage and reduce risk.
Successful risk management improves with experience but according to The Chartered Institute of Procurement & Supply, in order to undertake risk management, the purchasing and supply management professional should have:
- a knowledge of the risk management techniques available an analytical mindset
- confidence to ask the right questions
- knowledge of their employer’s business and market
Technology has come so far over a such a short amount of time and continues to expand and improve just as quickly. Just as it has become centralized in the lives of millions, technology has taken its place in procurement practices. Embrace the continuous evolution of technology and use it to your advantage or else you will fall behind your adapting competitors.
With the impact that technology is having on modern procurement teams, professionals are being required to develop new skills. With that said, only about 3% of procurement professionals believe their staff can maximize the benefits of technology and about 51% believe they have little to no capability to deliver on current procurement strategies.
With the use of a solid procurement platform and the right tools though, professionals can update their skills, expand their knowledge, and improve their performance. A recent report by The Institute for Public Procurement identifies the benefits that procurement professionals experience from embracing technology, which includes:
- improved time management
- improved supplier relations
- access to accurate and instant information
- reduction in risk
- increased competition, diversity, and inclusion
- increased transparency
- increased audit capabilities.
The implementation of centralized purchasing can go a long way toward improving procurement performance. One central department is responsible for the oversight of all purchasing activities within the organization and across all locations.
There are several advantages to having a centralized procurement center that isn’t geographically dispersed. Among these advantages are enhanced volume purchasing, advanced use of technology through automation, improved organization of the process, and improved buyer-supplier relationships.
Keeping up to date with the latest trends and amending your processes can often feel like a lot of effort. However, the implementation of the above steps will lead major improvements in your organization’s procurement performance and bring it in line with best practice. Given the impact that technology is having on procurement but also the lack of confidence that leaders have in their ability to capitalise on it, choosing the correct automation platform will be key to improving your procurement processes.