Purchasing is a critical process for any organisation and has traditionally helped businesses navigate through difficult times. However, it has now become part of the management discussions and is also helping businesses gain a competitive advantage. As procurement teams face challenges related to squeezing margins and supply chain risks following the COVID-19 impact, there are newer opportunities to explore.
In this article, we will discuss how you can use purchasing to improve the competitive advantage of your business.
Competitive Advantage and Procurement
In simple words, your organization’s competitive advantage is the set of factors that allow you to deliver goods or services better or cheaper than your rivals. It is what makes you stand out. Businesses build competitive advantage over a period of time and it involves collaboration from multiple departments including purchasing or procurement. How?
Having an effective purchasing process in place means you have access to a verified supplier base that aligns with the businesses’ needs, you agree on mutually favourable terms, and your vendors deliver cost-effective, tangible, and high-quality deliverables, strengthening your supply chain.
How Can Purchasing Help to Improve the Competitive Advantage
An effective purchasing process can help you gain a competitive advantage. Here’s how it works.
#1 Lower total cost of ownership (TCO) across the value chain
An effective purchasing process means you get the required goods or services at the best available price. You can also take advantage of the hidden discounts or warranties to save costs. It will not only reduce your operational cost but also help deliver the value you need.
However, to make profitable purchase decisions, make sure you have complete visibility over your business’s needs, quantity and quality of deliverables expected, the purchase process being followed, and so on. It will help you modify your purchase decisions to make improvements and save costs. This also includes avoiding dark purchasing practices. Reduced total costs mean competitively priced products or services, translating to competitive advantage.
A purchase manager dons many responsibilities—saving costs, ensuring sustainability goals, managing and negotiating with suppliers, as well as mitigating procurement-related risks. Additionally, they also have to embrace innovation to gain a competitive advantage. The purchase team’s inputs in terms of innovation can begin at the product design phase which takes away the majority of the budget and has a direct impact on competitive advantage.
Also, as a department, it can adopt smarter tools and technology that streamline vendor management, reconciliation, negotiation process, collaboration and communication among different stakeholders, and so on.
#3 Improved efficiency
At the outset, an effective purchasing process helps you categorise and evaluate your suppliers so you choose the right one for the right need. This can be based on their capabilities, past performance, reputations, compliances, etc. Hence, sourcing or procurement ensures competitive advantage directly or indirectly through a robust supply chain.
It also helps you remove operational redundancies and promote collaboration with the supplier base. It allows economies of scale, which again can reduce costs and give you a competitive advantage.
#4 Reduced Supplier Risk
Risk mitigation is an important aspect of the purchase process. When it comes to suppliers, risk mitigation involves managing strategy, compliance, operational, and financial risks. With that being said, this should be a continually evolving process to develop a proactive, effective approach for the present and future.
With an effective purchasing process, you can identify, assess, and mitigate supplier risks to protect the company’s reputation and supply chain issues, which are related to competitive advantage.
#5 Robust supply chain
For a purchase team, it is critical to also plan for bigger picture issues as well including economic uncertainties, labour shortages, and even natural disasters to maintain an uninterrupted supply chain. With recent events, it has become more than important to prepare for unforeseen circumstances, and avoid disruptions in operations to gain a competitive advantage.
Purchase teams are at the core of the supply chain management. As the purchase departments evolve from the traditional role of just buying to becoming part of strategic discussions, they can offer you a competitive advantage in the market. An effective procurement can provide a competitive advantage by reducing total costs, mitigating supplier risks, ensuring greater efficiency, maintaining a robust supply chain, and embracing technology and innovation!
With Induzbuy’s smart procurement management solution, you make your purchase decision-making process easy and cost-effective. Know how you can automate your vendor management, contract management, reconciliation, inventory management, and much more with us!