Startups and smaller organisations’ procurement strategies are frequently “get what you need to make the business run”. This may work for small enterprises with limited purchasing demands, but as they grow, the system must change. Centralised purchasing, facilitated by technology, often initiates this progression. Centralised purchasing helps companies track and manage spending.
Consider centralised purchasing and its benefits for fast-moving businesses:
- Centralised purchasing
- Advantages of centralised purchasing?
- How is centralised purchasing limited?
- How does software enable centralised buying?
Centralised purchasing
Centralised purchasing centralises your business’s purchase into one department, system, or technology. At least one software system handles intake, processing, and payment for every purchase.
Without centralised procurement, companies can’t track staff orders or identify duplication and waste. As stakeholders source their own purchases, the organisation loses pricing and terms influence.
Single-location businesses coordinate purchases across teams and departments. Franchises use a procurement platform to coordinate purchases for various locations. The goal is to eliminate purchasing silos, improve management’s expenditure visibility, and manage the supply chain regardless of size or structure.
Advantages of centralised purchasing.
Moving to CP lets stakeholders keep their decision-making power and use the best vendors. This reduces costs and improves vendor relations while increasing productivity.
A centralised procurement solution reduces overhead costs, strengthens the purchasing strategy, automates purchase requisitions and orders, and gives the procurement organisation full visibility.
Cuts procurement expenses
It pays to organise. You can save a lot by planning business expenses and seeing all orders as one.
Centralised purchasing reduces unnecessary duplicate orders and non-company purchases. Additionally, it enables bulk order savings and lowers shipping costs.
Cuts maverick and duplication spending
Businesses squander less money on duplicate or maverick spending with CP.
What’s maverick spend and how? In summary, maverick expenditure is any non-standard procurement activity. It commonly happens when customers don’t grasp the buying regulations or think the transaction is tough.
Uncontrolled cash outflow is hard to catch with decentralised expenditures. So many staff from different departments and locations make purchases, making it challenging to monitor.
Businesses using centralised purchasing discourage employees from buying outside company policy with an approved process. It keeps vendor relationships strong, purchases compliant, and the purchasing team informed and equipped to analyse spend.
Centralised spend makes it easy to prevent two people or departments from mistakenly paying for the same service, such as if the marketing and sales teams want the same new software application. The two departments subscribe to the software independently and never know the business paid twice without centralised purchasing.
Unlocks bulk order discounts
Bulk orders are required to receive discounts from many vendors. Centralised purchasing allows that.
Businesses order more things and pay more when they buy together. This boost can qualify the organisation for vendor discounts and save money on procurement.
Reduces shipping costs
Shipping orders together saves firms money. Shipping many products together is cheaper than individually. High-ticket bulk orders sometimes receive free delivery reductions from many retailers.
Centralised purchasing saves staff time.
Inefficient, decentralised purchasing hurts operations and accounting. Centralised purchasing streamlines operations team ordering and reduces invoices.
Simpler ordering
Business purchasing takes time, especially when needs are spread across locations and orders are placed with several providers.
Designating one person to submit orders for all locations simplifies ordering. More developed organisations employ procurement systems to let users make orders with direct manager and department approval (such as Legal and IT). The mechanism works without separating buyers from supplies.
Reduces bills
Consider all the Amazon orders your accounting team processes. How much time would they save by consolidating those orders into one invoice?
Multiple locations or departments ordering together decreases accounting’s invoice processing and reconciliation workload. This saves the accounting department time at month-end and tax season.
Keeps quality consistent across sites
Continuously meeting client expectations across locations is crucial to customer retention. It’s hard to maintain consistency when buying separately.
Imagine running a fitness chain. Having one studio sell Kiehl’s and another Dove causes inconsistency for customers. Visitors to a studio with Kiehl’s products expect them in all dressing rooms. A lesson at a different location with different products may disappoint them enough to not return. Not against Dove—people enjoy Kiehl’s.
Avoid this issue by centralising product purchases for the organisation.
What limits centralised purchasing?
All the following benefits make centralised purchasing a good idea for your firm. Though powerful, this approach has several limits. Technology overcomes several frequent obstacles:
1. Centralised purchasing is only as good as process
Before introducing a purchase programme instrument, evaluate your procedures strategically. Track each purchase’s lifetime to learn how it’s triggered, approved, paid, and tracked by Procurement. A well-documented procurement policy will help you avoid unapproved spending.
2. Success depends on adoption
The best process won’t help if no one uses it. Documenting and sharing procurement policies is a fantastic way to boost acceptance.
Second, provide enough training on new regulations, tools, and best practices. For your programme to succeed, the C-Suite must support the transition.
3. Procurement professionals can only handle so much
While teams enjoy applying best practices. They uniquely care about corporate operations. Without tools, process optimisation is useless.
Consider how CP will affect your AP workforce. Consider potential effects as the company grows. Technology to automate purchasing becomes essential sooner than you realise.
