Procurement Cost Savings: 20 Actionable Strategies
How to Reduce Costs in Your Procurement Process
Procurement cost savings strategies aim to lower your overall procurement costs. And while strategic procurement is about more than cost reduction, reducing unnecessary expenses in your purchasing process is still the main goal. Cut purchasing costs drastically with these 20 actionable strategies.
1. Request Supplier Discounts
Open the discussion with your vendors by simply asking if you’re eligible for discounts. You may need to renegotiate your contract to meet certain conditions, but it’s possible that a short discussion can reduce costs.
2. Review Contracts
Look for ways to reduce procurement costs by reevaluating the terms of your purchasing agreement. There may be bulk discounts or early payment discounts you can qualify for by changing your relationship with your vendor.
3. Consolidate Vendors and Deliveries
Evaluate your organizational spending and see where you can combine deliveries or expand relationships with certain vendors. This can help you achieve bulk discounts while reducing delivery costs.
4. Review Purchasing Needs
Look at your inventory and evaluate your services. Are you using everything you order? Is there a way to use up overstocked inventory? Are some purchases completely unnecessary? Review and cut the excess from your procurement process.
5. Prevent Maverick Spend
Maverick or unapproved spend leads to significant waste ([up to 80%]) as it can result in unnecessary orders from unapproved vendors, expensive purchases, and even fraud. Educate your team on spending processes and approved vendors to reduce rouge spending.
6. Check Inventory
Before ordering more products, evaluate what’s in your warehouse. Unused products aren’t free to store. Plus, stored products are at risk of being damaged or becoming unneeded.
7. Evaluate Order Quality
Sacrificing quality to save costs can result in more purchases over time. But you also don’t need the best quality product in every situation. Some mid-level products function at the same level or better depending on how they’re used.
Review what you’re buying to ensure you’re paying for what you need, not just the “best”.
8. Improve Vendor Relationship Management
With vendor relationship management platforms, you can improve communication between your organization and vendors. And you can evaluate their performance, holding your suppliers to agreed on standards. This can improve deliveries while reducing costs to your business.
9. Provide Vendor Self-Service Portals
Save time and money by providing a way for your vendors to manage their own account information, view transactions, and communicate with your organization. This cuts down on unnecessary back-and-forth communication while ensuring deliveries meet specifications.
10. Set Up Reverse Auctions
Reverse auctions let the vendors bid on your proposals. This drastically reduces the time and headache involved in selecting the best vendor for the job.
11. Establish Clear Procurement Policies
To avoid unnecessary spending, set up clear parameters for purchases that your team can easily access and follow. This will ensure that you maximize your inventory before making further purchases.
12. Educate and Train Staff
Procurement is a central pillar of your organization. And optimizing cost savings is critical to keep your business functioning. Educate your team on the best procurement practices to ensure you reduce spending.
13. Optimize Procurement Management
It’s not enough to train your employees on best procurement practices. As a critical department in your organization, you need to evaluate your procurement management practices and ensure they’re aligned with your budget and business strategy.
14. Improve Risk Management
Unexpected events can cause your procurement costs to skyrocket. Procurement risk management helps you avoid or reduce risks to your business. So, when unfortunate events do happen, your business will be better prepared to act in a way that can avoid unplanned costs.
15. Collect Better Data
Accurate data can help improve procurement forecasting, helping your business get the best prices for goods and services. It can help you get a better understanding of your customers. And it can help reduce unnecessary spending.
16. Integrate Procurement Systems
Systems integration can provide your business with major benefits, especially in procurement. Connected systems provide better data and cut down on menial tasks, saving you more time and money.
17. Transition to E-Procurement
There are plenty of great e-procurement tools out there that can help you automate your procurement process. These systems provide better data insights, tracking, and document management. And over time, they can provide an ROI of over 720%.
18. Automate Procurement Process
Manual invoice processing can cost up to $15 per invoice. Automating invoice processing can reduce that cost to under $5. Plus, you can avoid late fees and even get early payment discounts.
The fewer people that are involved in your procurement process, the less chance there is of costly errors. Plus, you can reduce labor costs by removing menial tasks like data entry and manual invoice processing. These costs add up drastically.
Automation removes them.
19. Centralize Your Data
Disparate data systems can’t provide real-time reporting. Instead, users have to manually collect and interpret that data (if they can find it.) Streamline your data insights and reduce procurement costs with a centralized procurement data system.
20. Change The Attitude Toward Procurement Savings
Procurement savings isn’t just a procurement issue, it’s an organizational issue. From sustainable procurement practices to business operations, getting your entire team on board to adopt a mindset of procurement savings will help cut costs throughout your organization.
Rapidly Deploy Procurement Cost Savings
At Quandary Consulting Group, our process consultants can help you improve your workflows and systems by building custom applications and integrating your disparate procurement processes.
Always within budget. Always delivered on time.
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