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Reduced Sales, but Increased Profits with Efficient Procurement

Let’s face it, for-profit companies are in business to make money! That generally includes the sale of some type of product or service. Whether public or private, there is someone or a group of people to which the company must answer. It could be a board of directors, stockholders or a business owner, business partners, or even a family owned business. They all want to know one thing: how are you going to make them more money. Obviously there are other concerns and issues, but the bottom line is the bottom line. They are involved in the business to make a profit. There is often an unspoken (or even spoken) pressure to increase sales in order to increase profits. Consider that there are other options available to every company to increase profits without increasing sales including the proper use of efficient procurement.

When times are good, many companies get a little relaxed in their approach to the business. Activities are a little more loosely monitored or not at all. There doesn’t seem to be an end to the money and spending goes out the door quickly with easy approval. Riding on momentum and adrenaline sales are plentiful. If there is a need for a big one-time expenditure the troops are rallied and they work to land a new account, have everyone sell 2 more widgets each, or some version of an increase in sales to cover the cost of the project. Fear and caution are thrown to the wind.

When times are bad, many companies have the opposite approach and tighten down everything. How can we cut costs? Save money? Spending slows to a crawl and approval becomes very difficult. Hiring freezes are followed by temporary holds on raises followed by voluntary layoffs followed by mandatory layoffs. For most companies the payroll/personnel is one of the biggest, if not the biggest, expense to the company. If profits are falling there has to be a cut to keep the necessary people happy. Without the cash flow there is no way to maintain the payroll and something has to be done to bring income and expenditures back into balance.

Instead of rocking back and forth like an out of control pendulum, taking a more balanced approach that sustains you through both good and bad will be far more beneficial to everyone. One of the ways to do this is to constantly be analyzing and working on a more efficient procurement plan. It could mean something large like upgrading your system or a series of small changes and even indirect changes. Look everywhere for ideas. The people right the middle of the mess are often your best source of ideas. Don’t limit this to company executives or even specific committees or task forces. Keep eyes and ears open. Some may be afraid to voice their ideas thinking their idea is not important or creative enough. Whatever you can do to create an environment of creativity so no one is afraid to share their idea including rewards for implemented ideas will go a long way. Over time, these improvements will create an efficient procurement system resulting in savings year after year with large payoffs even when sales are down. Don’t lose focus. You can do it!

May 16, 2013
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BY Bellwether
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