How Procurement Optimization Adds Value to Organizations
Procurement is often a misunderstood and disregarded (unfortunately!) function of an organization. However, procurement optimization can produce a host of benefits and add tremendous value to your organization as a whole.
Procurement optimization can lead to significant savings
From a business perspective, the most obvious benefits of effective procurement optimization are financial. Productively managing procurement – and by extension purchasing – will allow an organization to realize immediate upfront cost savings by procuring items, services, and contracts at the best price available.
Furthermore, a company will be able to properly take advantage of any warranties or discounts that are often forgotten, leading to routinely neglected, yet critical, back-end savings. A fully functional purchasing process will also allow for better visibility into company spending and budgets.
Having a strong understanding of company spending will allow organizations to negotiate better contracts with vendors, enabling a company to take full advantage of discounts that might have previously appeared unavailable to them. Visibility into spending patterns and budgets will also allow organizations the option to leverage additional cash flow by extending payment terms and forecast for the future.
A fully functional procurement process can lead to greater efficiency and preparedness
Many view the procurement cycle as a one-dimensional process within an organization. However, procurement, when it is adopted widely within an organization, often leads to greater efficiency and provides for a better match with desired goods or services. An optimized purchasing process will lead to more efficient sourcing – quality goods and services delivered on time.
An up-to-date procurement process will also ensure that an organization’s supply chain will be able to capably navigate through any unforeseen roadblocks (financial problems, natural disasters, labor shortage/surplus, economic volatility). When optimized, an efficient procurement process will also help in distinguishing between successful vendors from underachieving vendors.
Being able to distinguish between quality vendors will improve your supply chain and lead to compensation from low-quality vendors. This is especially true is they fail to deliver within agreed upon parameters.
An empowered procurement process will allow for innovation
Businesses are constantly being tested by their competitors – either on price, quality of good or service, or convenience. Any competitive edge might be the difference between a new customer and a lost sale. A progressive procurement process will allow an organization to seek out innovative products or services.
An organization with an entrusted purchasing process will enable the sourcing of those innovative goods and services in the hopes of securing a competitive advantage. In some cases, solidifying (empowering) this function might even yield exclusive deals with suppliers.
Improving the procurement process
An effective procurement process will improve an organization’s bottom line and increase efficiency. But, the evolution (improvement) of a procurement function does not happen in a vacuum. Providing your team with the right procurement tools enables them to improve upon the current procurement process is critical.