3 Basics of Procurement Cost Savings

Visibility, Transparency & Collaboration – Three Basic Tools to Procurement Cost Savings

procurement savings

Costs Savings is the number one priority of CPOs. Growing pressure for procurement teams to reduce costs is driving most of the procurement organisation. Today’s Procurement Officers are burning the midnight oil to find new ways to reduce cost. They are looking for the best solutions to understand where and how much they are spending, how to set goals focused on savings and how to manage sourcing to reach those goals.

There are many traditional cost saving techniques, which are still popular and widely practiced by procurement officers’ like Consolidate Vendors, Aggregate Purchases, Reduce Maverick Spends, Reduce Internal Costs, Avoid Spend Leakage etc.

But Procurement organizations are now moving ahead of these traditional measures and changing how they operate by scrapping complex tools and investing in sourcing platforms that streamline and expand sourcing processes. These tools encompass accurate analytics, dynamic negotiations, reverse auctions, collaboration, and transparency that unlock cost savings and additional strategic benefits.

1. Spend Analysis for Spend Visibility

Spend analysis is a process in which organisations spend data are Collected, consolidated and organized to generate actionable insights for process improvements and find opportunities for cost reduction.

In order to find more ways to generate value from every penny spent, Procurement Organisations have to grab every savings opportunity created by cost reductions and improved efficiency throughout the supply chain. Businesses can successfully navigate through competitive global marketplace by managing its outsourcing cost.

Spend Analysis helps the procurement organisation to get an optimal return of their investment. It help to increase transparency in the procurement process and help to control maverick spend and inadequate supplier management.

Having visibility of entire procurement cycle helps us to make more informed decisions. Spend Analysis helps us to categories our suppliers in terms of performance and reliability. It helps us to segregate supplier those should be awarded for their outstanding performance and suppliers those are unreliable, under-performing, and must be removed from our supply base.

Spend Analysis helps us in making strategic supplier relationships by consolidating supplier base and grabbing the benefits of shared opportunities and economies of scale. It helps us to understand if there is a need of renegotiating the exiting contracts for better pricing, quality, and terms from a preferred supplier.

It helps us to take decision whether we should go with one-source model or keep multiple vendors for a particular item we purchase.

We need right spend analysis tools to reap all benefits of Spend Analysis.

Spend analysis services from GEP help leading companies across the globe identify — and realize — multimillion-dollar savings opportunities previously unknown to them. https://www.gep.com/managed-services/procurement-outsourcing/spend-analysis

2. Reverse Auctions – cost reduction through transparency

Reverse auction tools can maximize cost savings while building strong supplier relationships by providing overall value to both parties. when enterprises successfully implement a reverse auction strategy into their purchasing process, they see between 10-20 percent savings.

There are many Companies who provide best in class reverse auction tools in India like – Metal Junction (https://www.mjunction.in/services/sourcing-platforms/) , Salasar Auctions (https://salasarauction.com/reverse_auction) , Synise (https://www.synise.com/synise-services.html) etc.

Having these tools as part of the enterprise’s procurement strategy provides the necessary visibility to successfully negotiate, as all parties can understand requirements, and easily navigate across different scenarios to provide the greatest business impact. 

With transparency into supplier relationships, procurement teams can make informed decisions about risk and cost-saving opportunities. Transparency allows Procurement Leaders to effectively manage contracts making the process a win-win for both Supplier and Buyer.

3. The importance of collaboration

Collaboration simplifies the complex relation of Supplier and Buyer. It removes relatioship bottlenecks to accelerates impactful outcomes for both Supplier and Buyer. Collaboration across all parties, procurement, legal, business partners, finance, and suppliers simplify communication allowing questions and issues to be addressed quickly, accurately, and efficiently between stakeholders. 

Collaboration across business stakeholders helps to delivers cost savings goals and helps to bring more spend under management. Transparency and collaboration between procurement teams, suppliers and related business functions, organisations creates a powerful procurement practices to drive significant changes throughout the supply chain.

Conclusion

Spend Visibility helps organisations to find spend categories and suppliers where we need to prioritize our cost control projects. Transparency helps us to uncover the hidden opportunities of cost savings across all functions of supply chain. Collaboration among all partners of Supply Chain helps us to successfully implement our cost control and saving projects to get the benefits that adds to companies bottom-line.

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