Procurement in the majority of businesses is by far the biggest supply chain cost. In today’s economy, efficient and effective procurement is very important. This is applicable to indirect procurement which pertains to the services and facilities of a company and direct procurement which refers to the materials and products of a certain business. What resources should a procurement team refer to or monitor when designing a plan for their company?
For the senior management, a procurement team’s success depends on the value of savings they produce. Thus, the main activity for procurement each year is to design a savings program. The process wherein procurement takes charge of the external expenses made by an organization, achieves price reduction and puts it under contract is called spend management. However, the problem that most procurement teams face is that not all expenses are under this kind of management and so they’re not part of the savings program. There are lots of possible reasons for this, although the main one is that the other individuals in the organization spend money without the involvement of the procurement team.
On the other hand, studies have revealed that savings of between three to twenty percent are achievable when expenses are put under a spend management system led by a procurement team. Therefore, one way to start a company’s annual savings program is to find out what’s not being handled in this way. How can an organization identify the things that are not going through the spend management process?
First, identifying all sources of data on the expenses is vital. This may be in various places including sources outside the company’s format information systems such as spreadsheets and manual sources like purchase order books. Getting a report from payable systems that identify how much has been spent with the suppliers should be done as well. When this report is compared to the data collected from the outside sources, it will tell the how much spend data a company is missing.
The next step is to extract the spend data from the data sources collected and organize it based on what it was used for. Asking the persons who spent the funds is needed in order to obtain this information. It is also important to gather data on the contracts a company has in place. Take a look at the spend data after classifying it and see if it’s possible to mix the amounts spent on the same products to boost the volume a company purchases from certain suppliers and to obtain a volume discount as well. Compare spend analysis with the company’s contracts to see if there are items purchased under contract. By utilizing the contract when purchasing items, a company will be able to make savings.
Planning for effective procurement is definitely a must, especially with the current state of the economy. Preparation, planning as well as financial management is necessary to ensure that sustainable procurement is obtained and the company will be able to improve its functions and get the returns they are expecting from their investments.