1) Use intelligent procurement to channel spend.
The first spend under management principle involves leveraging technology to automate, regulate process and policy, and record and evaluate important spend data to promote transparency and efficiency across the organisation. We discussed this principle in our earlier blog. Read Part One of our ‘Spend Under Management Series’ here.
2) Purchase via formal requisition.
An organisation should aim to manage 100% of spend. Complete and universally enforced policies and procedures should regulate these purchase operations. Just having them in place is a start; the key is implementing and reinforcing them in processes and business practices for all spend categories. This requires a procurement infrastructure that can handle category and region-specific needs. This will enable safe data access, simplify and streamline decision-making, and ensure that forecasting and decision-making are based on best practices and spend analysis, not intuition.
3) Source competitively.
Buying in a competitive environment helps your business obtain the best value for your money since suppliers compete to increase efficiency and lower prices. This is simple yet rarely done for several reasons. Quick quotations in a procurement tool, web-enabled RFPs, and auctions are a start, but category, location, and end customer needs determine how to maximise sourcing business value. Many procurement firms are using eSourcing systems to cut costs and get visibility into their spend. With the proper solution, you can comprehend your complex buy mix, find more savings and competitive deals, and automate sourcing to optimise results.
4) Use contracts for all spend under management
Well-structured and managed contracts improve efficiency, reduce risk, and manage supplier partnerships. Contracts or pre-negotiated catalogues should account for 70–90% of spend in most categories. Indirect procurement experts can benefit functional sectors and their requests. Your procurement team may not be able to proactively manage these contracts, such as meeting supplier commitments, identifying best practices, and providing market insights. You must also ensure your systems and processes enable effective supplier contract transactions. For instance, leakage or maverick expenditure may circumvent systems. Your procurement professionals can help again, but not every company has the resources. A contract management tool can help streamline acquisition by offering visibility into agreements, project milestones, and performance indicators to generate dynamic agreements based on real-time data.
5) Measure and manage closed-loop.
To maximise sourcing strategy acceptance and savings, a closed-loop performance assessment and management system is essential. By “closed-loop,” we mean a system that can respond on monitored performance and integrate outcomes with strategy goals to produce corporate value and impact. By using robust spend analytics tools that allow you to view information at any level of granularity, cost savings targets can be explicitly linked to business financial goals and impact core business metrics like TCO, operating profit, working capital, and cash flow. For instance, your company may want to save 5% in a critical cost category. This could require many contract revisions or a vendor contract renewal at the expense of other contracts. Your business may want to stay within a supplier budget and only sign a third-party contract if a provider’s price is far lower than the new supplier’s. Closed-loop procurement strategies make it easier to get the information you need to succeed.
A closed-loop procurement solution that leverages spend analytics and eSourcing will maximise savings for companies with numerous spend sources. When combined, these two procurement core components can help you find and strategically source your best savings opportunities.
