Up Your Procurement Game by Employing These 5 Best Practices
January 5th, 2019 • Procurement Process
The cost of purchasing, and doing business, is on a steady rise. Businesses have started to regard procurement management as their top priority, since it takes up a large share their overall spend. Considering most organizations still hold on to their manual procurement practices, a complete revamp of their procurement functions is crucial to keep pace with business demands.
In order to get the fundamentals right, organizations need to implement an effective procure-to-pay process and embrace the right technology solutions. However, simply revamping the process and implementing a top technology product won’t make the procurement function best-in-class.
So, what does it take?
The answer might vary from one organization to another, but there are some procurement best practices that several leading companies have adopted over time. Here’s an outline of five procurement best practices that, when implemented properly, can significantly lower costs, improve process efficiency, and have a positive impact on the cost-income ratio.
1. Automated Procurement
Automation plays a critical role in making procurement activities future-ready. Automated procurement processes reduce repetitive operational parts of procurement and amplify the strategic role.
According to a recent CPO survey, the level and speed at which organizations embrace automation is way below expectations, and requirements. Only 18% of CPO’s have a procurement automation strategy with a complete business case.
As technology continues to become an integral part of our everyday activities, a complete digital transformation for procurement activities is inevitable. High-performing organizations are leading the pack on digital procurement practices. Other businesses need to wake up to reality and embrace automation to make their procurement processes efficient and seamless.
Barriers that organizations need to watch out for while implementing procurement automation:
- A lack of data integration
- Poor data quality
- Limited endorsement from management
The Impact of Automation on Procurement Processes:
- Contract Management – Store contracts securely in a cloud database
- Supplier Management – Monitor supplier risk real-time
- Invoice Approval – Auto-matching to prevent maverick spend
- Purchase Request – Spot supply demands automatically
- Purchase Orders – Eliminate repetitive steps and streamline approvals
2. Spend Transparency
Making procurement functions transparent is the baseline to unlock potential savings and make headway into achieving operational excellence. Spend transparency is the key to ensuring accountability and minimizing opportunities for fraud in the procurement process.
Steps to ensure spend transparency in the procurement process:
- Define and implement procurement policies properly
- Monitor and document every step of the procurement process
- Identify and manage a list of approved supplier lists
- Establish fool-proof procurement contracts
- Conduct frequent audits
By harnessing the power of data analytics and automation, organizations can eliminate dark purchasing and maverick spend. Procurement technology offers better visibility into the procure-to-pay cycle.
3. Supplier Engagement
Every organization has a number of suppliers who deliver essential products, provide specialty services, perform regular maintenance, and complete one-time urgent repairs. Although calling a specific vendor to order a merchandise or repair a faulty machine sounds simple, the task of qualifying and managing a supplier is anything but.
The process of identifying a potential supplier, onboarding the vendor, scheduling the service, obtaining the invoice, and paying the vendor is overwhelming. If managed manually, just a simple process of submitting one vendor invoice can consume several hours.
Supplier management tools offer a set of unique features to improve the source-to-contract process and enhance supplier engagement. Procurement automation tools offer a comprehensive vendor dashboard, pre-made contract templates, automated workflows, and extensive integration with accounting management systems.
An organization can improve supplier engagement by:
- Generating win-win situations and trust
- Treating suppliers as strategic partners
- Monitoring supplier performance with specific KPIs
- Enabling collaboration and communication with vendors
Effectively collaborating and partnering with vendors is a key enabler. This allows procurement teams to move on from a ‘trusted operator’ status to a ‘business co-creator’ footing, improving business expectations and value contribution.
4. Optimized Inventory
As profit margins shrink in certain industries, organizations are constantly looking for ways to control their spend and improve the bottom line. Their primary focus is the procurement process. So, procurement teams need to constantly review their inventory and strive to ensure they stay optimal.
Best-in-class organizations pay close attention to their inventory since the ‘real cost’ of holding inventory is much higher than the cost of ordering items. The rule of thumb for holding costs is between 20 and 30 percent. And it isn’t just consumable products that go bad over a period of time–everything from consumer electronics to clothing are subject to risks.
The major reason for out-of-balance inventories is poor planning and forecasting. Procurement leaders around the world are slowly recognizing the power of better data-driven insights. Nearly 50% of respondents in 2018 Global CPO survey confided that they are leveraging intelligent and advanced insights for cost and inventory optimization.
Here are a few questions organizations need to check whether their inventory is optimized:
- What is the ratio of operating inventory in terms of safety, replenishment, and excess stock?
- Does the procurement team over- or under-purchase any products/services?
- What is the optimal frequency of purchases?
- Are all purchase requisitions and orders in sync with inventory levels?
5. Contract Management
Although procurement teams try to negotiate potential savings in the sourcing stage, they never completely unlock the value. While the reasons vary, the most common problem is a disorganized contract management process.
A recent report on contract management indicates that nearly 81% organizations don’t use any Contract Lifecycle Management (CLM) software. As a result, they face a number of pain points including lack of consistency across contracts (53%), cumbersome processing (45%), and supply chain continuity problems (36%).
Organizations can stay clear of these procurement pitfalls by moving their contract management process to the cloud. When contracts are created, stored, and maintained in a centralized data repository, organizations can leverage their spend optimally, reduce costs, and mitigate risk.
Contract management automation will provide organizations with
Store all documents (riders, amendments, etc.) in a cloud database that is accessible from anywhere
A highly scalable and customizable interface that could be tailored to fit around business requirements
Trigger automated alerts to highlight contract milestones, renewals, and chances for renegotiation
Track delivery time, product quality, pricing fluctuations, and adherence to purchasing terms/policies
Level Up Your Procurement Game With KiSSFLOW
Some of these procurement best practices may seem simple and familiar, while others are fairly new. However, by implementing them properly, organizations can unlock procurement excellence.
A procurement management tool is the first step towards building a sustainable procurement strategy. A DIY workflow automation tool like KiSSFLOW can be used to create your own streamlined procurement processes.
With KiSSFLOW, organizations can shorten procurement cycles, accelerate purchase approvals, reduce expenses, and generate visual-rich reports without compromising on policy compliance.
Take the first step to make your procurement process simple, smart, and sustainable. Sign up for KiSSFLOW today.
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