Many firms are seeking methods to saving on procurement expenses as budgets tighten and expenditure streamlines.
However, these companies may forget that numerous tiny, systematic improvements over time improve procurement outcomes. These changes affect the cost-effectiveness of indirect spend, a major cost centre.
These are the top 20 techniques to optimise your P2P cycle and save money on procurement. Learn this in this article:
- As procurement efficiency strategies, cost savings and avoidance
- Top 20 strategies to boost procurement savings year-round
- How technology streamlines and accelerates procurement savings
Cost savings vs. avoidance
Cost savings and cost avoidance are two ways firms save money. Leaders emphasise cost savings, but cost avoidance is also vital.
Cost savings involves lowering project, department, or location costs. Eliminating waste and optimising operations saves money. Switching from pricey to cheaper items or services might save money. Cost savings save costs, boost efficiency, and keep companies competitive.
Preventing expenditure is cost avoidance. Negotiating better supplier terms (such as avoiding scheduled cost increases or locking in interest rates), completing maintenance to prevent replacement costs, outsourcing duties or processes, and streamlining operations are cost avoidance tactics.
Top 20 procurement saving strategies
The 20 finest spending-boosting tactics used by procurement leaders and managers are:
- Stakeholder education: Well-documented spend policies set buyer and decision-maker expectations. These policies educate and equip everyone to spend wisely and procure proactively.
- Strategize sourcing: Strategic sourcing is cheaper than transactional procurement. This higher cost affects cost per unit, vendor response, turnaround time, and other soft metrics. Organisations benefit quantitatively and qualitatively from excellent supplier partnerships.
- Combine vendor lists: Vendor overlap dilutes leverage by spreading spend. Consolidating vendor lists strengthens connections and cuts vendor management labour and costs.
- Limit erratic spending: Spending outside the documented procurement procedure increases expenses and silos information. Instead, implement procurement policies and cut corporate card and spot buys.
- Establish spend approval rules: After establishing your procurement strategy, set spend approval protocols and criteria to guarantee every purchase request is reviewed. Order size, product type, location, role, or department may determine these standards. Process larger contracts with legal and security checks.
- Reduce third-party risk: Companies spend millions on data breaches and procurement fraud mitigation. To avoid costly mishaps, implement procurement risk management.
- Utilize your logo: Use your logo to negotiate better prices and terms. For a testimonial or case study from a top business partner, many vendors may offer a discount or more flexible terms.
- Check procurement costs: Lack of reporting and spend analysis hides many unneeded costs. Set a frequent analysis schedule to uncover savings and alter contracts. Small improvements over time save thousands or hundreds of thousands.
- Manage categories: Cost management requires knowing which spend categories represent your biggest capital investment. Create category management techniques for these big-ticket items to save money.
- Utilize volume discounts: Consolidating vendor connections lets you buy your most-used materials and services. Use volume discounts to save on company items and consumables.
- Examine expense reports: Another source of unauthorised spending is expense reporting. Regular audits reveal overspending. It also finds employee credit card recurring purchases that spend analysis can’t.
- Inventory management: Poor inventory management and over ordering cause liability and cash flow difficulties. Audit and manage inventories to avoid overages and shortages, especially when hurried delivery may cost more.
- Streamline logistics: Centralised delivery services increase trucking and logistics costs. Optimise logistics across locations to reduce trucking and warehousing costs.
- Benchmark prices: Understanding vendor pricing against industry or internal benchmarks helps procurement negotiate. This keeps contract performance metrics robust.
- Consider multi-year contracts: A multi-year contract with a reliable provider usually lowers rates. Lock in interest rates and adjust terms to save money and boost the deal’s worth.
- Do less manual accounting: Manual procurement and accounting are costly and inefficient. Extra fees, multiple payments, and early payment reductions occur from accounts payable errors. Reduce manual data entry and processing to lower per-invoice accounting costs and overhead.
- Discounts: Strong vendor connections let you negotiate better contract conditions beyond the bottom line. Better payment periods (which boosts cash position) or early pay discounts for responsible customers are examples. Suppliers often negotiate with clients to reach mutually beneficial agreements.
- Establish procurement KPIs: You must quantify cost savings to improve them. Setting purchase goals and tracking progress saves money. Consider contract performance, supply chain efficiency, and TCO.
- Set role-based spending limits: Department, role, organisational level, and team or location spend policies fine-tune budgeting across the organisation. Create dynamic controls to inform users of spending restrictions and exceptions.
- Manage spending with software: Spend analysis software helps finance and accounting teams manage and anticipate budgets by highlighting all expenses. Spend management tools provide detailed firm spending data, highlighting cost reductions and needless spending.
