The price of purchasing, and conducting business, is on a steady rise. Commercial enterprises have began to regard procurement management as their top concern since it takes up a big share their general spend. Considering most companies still hold on to the hand procurement methods of theirs, a full revamp of their procurement functions is crucial to keep pace with business demands.
In order to receive the basics right, organizations need to implement a highly effective procure-to-pay progression and embrace the proper technology solutions. However, just revamping the task and utilizing a premier engineering product will not make the procurement function best-in-class.
So, what will it take?
The solution may vary from one organization to the next, but there are some procurement best practices that several leading companies have adopted over time. Here’s an outline of 5 procurement best practices which, when implemented the right way, could significantly lower costs, improve procedure efficiency, and have a positive effect on the cost-income ratio.
1. Cloud-based procurement tools
Taking procurement digital is an essential step in making procurement tasks future ready. Digital procurement strategies help teams reduce the repetitive operational facets of procurement, freeing up team members to center on strategic roles.
As technology continues to become an integral part of our daily activities, an entire digital transformation for procurement routines is unavoidable. High-performing businesses are actually leading the pack on digital procurement practices.
Here is what competent digital procurement methods as Gatewit Procurement Cloud Software can handle:
Supplier Management – Onboard, maintain, and handle vendors in an easy-to-use, effective platform.
Invoice Approval – Approve your invoices on the go & do quick three way matching.
Purchase Requests – Fluid types allow you to capture, approve, and keep track of purchase requests.
Purchase Orders – Issue POs and produce orders automatically from approved purchase requests.
Spend Analytics – Generate actionable, data-driven insights from your purchasing related data.
Integrations – Connect your procurement cloud along with other important finance software systems.
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2. Spend Transparency
Making procurement functions transparent would be the baseline to unlock possible savings and make headway into achieving operational excellence. Invest transparency is the key to ensuring accountability and lessening possibilities for fraud in the procurement process.
Steps to ensure invest transparency in the procurement process:
Determine and implement procurement policies properly
Computer monitor as well as document every step of the procurement process
Identify as well as manage a listing of approved supplier lists
Create fool-proof procurement contracts
Conduct regular audits By using the strength of data analytics as well as automation, organizations are able to wear away dim purchasing as well as maverick spend. Procurement technology has better visibility into the procure-to-pay cycle.
3. Supplier engagement
Every organization has a number of suppliers that provide important products, provide specialty services, perform routine maintenance, and complete one time immediate fixes. While calling a specific vendor to purchase a merchandise or even repair a faulty machine may seem easy, the task of qualifying and handling a supplier is anything but.
The procedure for identifying a potential supplier, onboarding the vendor, scheduling the service, obtaining the invoice, and paying the vendor is overwhelming. If managed manually, just a fairly easy practice of publishing one vendor invoice can take in several hours.
Supplier management tools provide a set of unique options to improve the source-to-contract process and enhance supplier engagement. eProcurement tools provide comprehensive vendor dashboards, built contract templates, digital procurement processes, and intensive integration with accounting management systems.
A business can improve supplier engagement by:
Generating win-win circumstances and trust
Treating suppliers as strategic partners
Monitoring supplier performance with specific KPIs
Enabling collaboration as well as communication with vendors ☛ Guide which is Free: The Ultimate Guide to Managing Remote Procurement Teams.
4. Optimized inventory
As profit margins shrink in specific industries, organizations are continually searching for ways to control their spend as well as help improve the profits. Their primary focus is actually the procurement process. Thus, procurement teams need to constantly examine their inventory and attempt to ensure they stay optimal.
Best-in-class groups seriously consider the inventory of theirs since the’ real cost’ of holding inventory is substantially larger than the price of purchasing items. The rule of thumb for holding prices is actually somewhere between 20 and thirty percent. And it isn’t only consumable things that go bad over a period of time everything from consumer electronics to apparel are subject to risks.
The key reason for out-of-balance inventories is very poor planning and forecasting. Procurement leaders all over the world are slowly recognizing the strength of better data driven insights. Nearly 50 % of respondents in 2018 Global CPO survey confided they’re leveraging advanced and intelligent insights for price and inventory seo.
Below are a few questions organizations need to examine whether their inventory is optimized:
Do you know the ratio of operating inventory in phrases of safety, replenishment, and excess inventory?
Does the procurement team over- or under purchase any products/services?
What’s the best frequency of purchases?
Are all buy requisitions and orders in sync with inventory levels?
5. Contract Management
Even though procurement teams strive to negotiate potential savings in the sourcing stage, they never totally unlock the value. Although the reasons vary, the most popular problem is a disorganized contract management process.
A recent report on contract control shows that nearly 81 percent of organizations do not use some Contract Lifecycle Management (CLM) software. To be a result, they face a number of soreness points like lack of consistency across contracts (fifty three percent), cumbersome processing (45 percent), and supply chain continuity problems (36 percent).
Businesses are able to continue to be clear of these procurement pitfalls by moving their contract management function to the cloud. When contracts are created, stored, and maintained in a centralized information repository, organizations can leverage their spend optimally, reduce costs, as well as mitigate risk.
Agreement management automation will provide organizations with:
Main repository: Store all files (riders, amendments, etc.) at a cloud database that is accessible from anywhere
Configurable interface: A highly scalable as well as customizable interface which might be tailor-made to fit about business demands Automated notifications: Trigger automated alerts to highlight contract milestones, renewals, and chances for renegotiation.
Performance monitoring: Track adherence, pricing fluctuations, product quality, and delivery time to purchasing terms/policies