As the costs of running a business are rising, most companies have started considering procurement management as their top choice. Reason being that it takes up a large share of their total spending. To help businesses that are still on hold of the manual practices, a complete turn-around and improvement of their procurement functions is vital in maintaining pace with the business requirements.
To better get the fundamentals correct, business organizations needs to embrace the use of advanced technology and implement an effective process. However, simply implementing must embrace op technology, and improving the process won’t make the function top. Below is a discussion based on the top seven procurement practices that when fully implemented can improve process efficiencies, lower costs, and have a positive outcome on the cost-income ratio.
1. Maximize Inventory
Efficient inventory management is one of the most forgotten areas in the procurement practice. So, maintaining the inventory at an optimal state is among the best practices. You can do efficient inventory management by reducing wastage while delivering to customers’ expectations.
Some of the things you should know about whether inventory is optimum are:
- Poor forecasting and planning are the main reasons for out-of-balance inventories.
- Over time, it’s not only consumable products that go bad.
- 20 – 30 percent are a rule of thumb for holding costs
2. Spend transparency
This is the key to minimizing opportunities for fraud and ensuring accountability in this process. Bringing your spending under one management is one of the greatest ways of increasing cost savings.
Some of the tips for ensuring transparency in this process include:
- Document and monitor every step in this process.
- Ensure frequent audits.
- You should identify and manage a record of suppliers.
- The definition and implementation of this process should be in place.
- Organizations can therefore eliminate maverick spending by harnessing the power of automation and data analytics.
3. Use of cloud-based Procurement Tool
For businesses that want to maximize growth, automation is significant. Automation helps in the reduction of repetitive operational parts of the process. This also gives employees ample time to consider the growth of the business.
Some areas to automate are invoice approval, spend analytics, purchase requests, and supplier management.
4. Engaging suppliers
The process of onboarding a vendor, obtaining the invoice, identifying a potential supplier, and scheduling the services can be formidable. Supplier management tools such as eProcurement tools offer digital procurement processes, vendor dashboards, and extensive integration with accounting management systems.
Supplier engagement can be improved by monitoring supplier performance, enabling collaborations, and treating them as strategic partners.
5. Reduce risks
Risks threaten the business’s success and should be effectively managed. Therefore, identifying both external and internal risks in your supply chain is the best procurement management practice.
Procurement tips for managing risks include
- Managing risk potentials with already in place solutions.
- Ignoring those that don’t pose real threats.
- Remove the possibility of the risk occurring.
6. Train your procurement staff
Training ensures that your team is equipped with the necessary skills. This is crucial in helping the teams carry out processes efficiently and effectively. Furthermore, this helps them in tackling situations before they get out of hand.
7. Establish a multi-sourcing strategy
It’s not the aim of any business to rely on one supplier only. This is because you may risk delays which may ruin the relationship between you and the supplier. You should consider suppliers from different regions. Organizations should plan to diversify their supply chain from different regions to handle this.
Procurement logistics ensures the distribution of goods from the company’s suppliers to the customers.
To better manage your business, you should consider the above procurement practices.