Following on from a previous article on our blog, we look at the benefits that an effective procurement programme can bring.

Effective procurement is yet to be truly embedded in most organisations. For a long time, purchasing was seen as a necessary operational evil. Often non-purchasing trained personnel are responsible for significant buying decisions. Purchasing was often done tactically on an ‘as and when needed’ basis. Even in organisations where sophisticated purchasing operations exist to deal with cost of manufacture, or buying in goods for resale, third party supplier costs for indirect areas, such as Logistics, IT and Communications are often neglected.

By using proper procurement processes – including Category Management and Supplier Relationship Management – organisations are able to treat effective procurement of indirect costs, as a strategic function. A Category Management strategy, involving relevant stakeholders, is a structured approach to the procurement of goods and services in a specific area. It applies a robust sourcing process in line with organisational needs and objectives.

So how does strategic sourcing work?

It leverages knowledge, people and expertise to minimise risk in the supply chain. Changing business conditions in the area of supply allows for proactive management to exploit opportunities to deliver cost savings and value. Dedicated category experts that are in touch with, and understand the market from which they are buying are aware of issues in the marketplace, and of the practices of suppliers. They can deliver tangible value by managing the supplier relationship on an ongoing basis and reacting to market conditions.

A strategic approach can bring tangible benefits. Success can raise the profile of purchasing in an organisation and deliver benefits in terms of service levels, quality, availability and value for money. Tangible, measurable savings in the double digit percentages are perfectly reasonable expectations. This is money that can be reinvested or accrued to increase shareholder value – by as much as 40% over five years.

There is often a knock on effect with organisations. In one project, we saved a multi-site client using multiple suppliers £55k on a £160k/pa Office Supplies spend, in part by consolidating to a single supplier. A year into the project, an email arrived from the client. He had calculated that in addition to the cash sum of £55k, by reducing the number of invoices from more than 3,000 to just 12, he’d saved another £250kpa in invoice processing costs.

We still live in a global marketplace. Despite the uncertainty, we know that we will continue to trade globally. And a global market place means longer, more fractured and more complex supply chains. The current uncertainty presents an opportunity to be proactive and even compels it.

As we’ve reported elsewhere, the cost of doing business in the UK is rising. The benefits that a proactive, effective procurement strategy across all aspects of your spending can bring are many, and tangible. As the market gets harder to compete in, managing your costs as well as maximising your sales is no longer a luxury. It’s an imperative.

For more information, contact us.

Article by: Karnjit Cooner