Corporates that adopt a silo approach and view the procurement process merely as a method of obtaining goods and services to fulfil an internal need, have missed a trick. An effective procurement strategy can create considerable business value through process optimisation across each department, and achieve better cost reductions.
According to research from global consultancy, The Hackett Group, world-class procurement departments operate about 20% more economically than the average company, and they have 27% fewer employees.
Here are six tips to help you build a first-rate procurement strategy:
1 Build trusted supplier relationships
Working with the right partners not only generates a degree of goodwill, but will also land the operational and cost efficiencies that can take your organisation to the next level. Supplier reliability in terms of a crisis or high-volume, last-minute demands, will engender trust and credibility between executive management and the employees whose direct needs are being met as well as the procurement function.
All you need to do is to be fair with the suppliers in your dealings, ensure that they are paid on time and have detailed and straightforward service level agreements (SLAs) in place. A great way of ensuring the quick payment of suppliers is to use a procurement card (P-Card).
2 Professionalise the procurement function
Align, incentivise and appropriately staff the supply chain, purchasing, facilities and logistics teams. Don’t treat the procurement team as ‘buyers’ of goods and services for the organisation.
Don’t spare any expense if training is required – the sooner the broader organisation views procurement as a critical, strategic function, the greater the knock-on effect will be in terms of the quality of the service delivery received. Invest in certain skills for your procurement professionals – hire managers who can manage supplier and stakeholder relationships well, have strong communication skills, and are strategic thinkers. Make sure you trust your employees to make good purchasing decisions.
3 Don’t sweat the small stuff
Look at how you can streamline the purchasing of low-value ‘non-critical’ items. It makes no sense to spend R1 000 in process costs to purchase an item that costs only R100. Rather than having expensive procurement professionals buying low-value items, look at implementing a P-Card programme that allows the users of non-critical items to pay for them on their own P-Cards. Backed up with a well-defined procurement strategy and an expense management solution for control and visibility, you can cut the all-in cost of the purchase to just over R100.
4 See technology as an enabler, not a threat
As much as you need to hire the best employees, you also need to be equipped with the best systems and software to garner long-term cost efficiencies and guarantee a real return on investment from procurement.
However, modern procurement software is not simply about monitoring and tracking stock levels, it is also about changing the way we view data. Having instant access to organisation-wide pricing and supplier information, and structuring internal workflows and processes are just a few of the benefits. Quality software built specifically for the procurement function can do this, and more.
5 Collaborate for strategic benefit
At a base level, procurement means sourcing what the organisation requires, at the right price, for the appropriate stakeholder. Strategic sourcing won’t achieve this objective on its own, but through the creation of a collaborative centre of excellence, best-in-class organisations get internal ‘customers’ actively involved in the decision-making and procurement process.
More importantly, these organisations solicit feedback and information regarding their objectives and strategies from those internal customers, which may include staff from functional areas such as finance, accounting, engineering, operations, maintenance, health and safety and quality assurance. Allowing these areas to implement and use P-Cards for purchasing will help improve overall business efficiency. This approach not only ensures availability of supplies but also results in lower total cost, streamlined processes, and increased responsiveness to customers’ changing needs.
6 Emphasise the benefits of risk and control
Prioritise the implementation of structures and controls. This shouldn’t come at the expense of the streamlining of processes – in fact, it should be seen as the forerunner. Only once adequate processes are in place to manage workflow, can the benefits of a streamlined approach bear fruit.
At the same time, it is important to regularly review policies, procedures and controls coupled with integrated risk management practices, creating a strong best-practices manual that can stand the organisation in good stead. Process improvements, such as the implementation of a P-Card programme with an expense management solution, can result in increased visibility and data availability, which can be used by procurement professionals to make more informed purchasing and operational decisions.
Contact Nedbank Corporate Card for more information on how P-Cards can streamline your procurement strategy.