How to Improve Your Procurement Efficiency to Increase Profit

The procurement process of any business is vital in maintaining the supply chain but it may come with numerous challenges. As procurement professionals acquire quality goods and services at the best price available, they need to revisit the process for improvements. Since procurement directly impacts a business’s bottom line, they need to adopt strategies and technology to improve procurement efficiency and profits.

In this article, we will discuss various ways to enhance the procurement process for improved profits.

Critical Challenges in the Procurement Process

Here are some common challenges faced by procurement professionals.

Supply risk: There are various types of risks that may hinder your procurement process including cost, quality, material, market, delivery, and fraud. Moreover, compliance risks such as adhering to policies or anti-corruption laws further add to the challenges.

Ineffective supplier management: When your supply chain depends on vendors, it may be difficult to identify reliable suppliers who can deliver quality goods or services on time to maintain a stable supply. Especially, the pandemic has underlined the importance of vendor performance and a dependable suppliers base.

Dark purchasing: When any goods or services are purchased out of the procurement process, it is known as dark purchasing. This can lead to uncontrolled expenses or the loss of revenue that are not justified by either the capital investment or the inventory management.

Inaccurate data: Right data is essential for making profitable decisions. In the procurement process, decisions made on wrong data can lead to inventory imbalances including shortage or excess, operational inefficiency, and others.

Delayed cycles: Delays in the procurement process can occur due to many reasons such as issues in contract negotiation, mismanaged schedule, or improperly defined technical specifications. This may not only impact business operations but also the bottom line.

Lack of technology adoption: Manual procurement management process is cumbersome and complex. It may lead to unnecessary delays as well as human bias and errors. However, adopting technology in terms of smart, digital procurement management solutions can streamline many aspects of a procurement process.

Why Do Procurement Professionals Need to Improve Procurement Efficiency

A procurement team needs to handle multiple tasks that involve coordinating and communicating with multiple departments, handling various requirements, and much more. This requires them to streamline and automate processes, so they can focus their time on strategic growth instead of repetitive tasks.

It won’t be wrong to say that for procurement professionals efficiency is the key to profitability.

Top 10 Tips for Improving Procurement Efficiency

Here are some proven tips to help you improve your procurement efficiency and maximise profits.

Adopt robust risk mitigation strategies: It is important to identify and categorise risks. Some common risks in the procurement process include ineffective contract and supply chain management, poor need analysis, and others. Therefore, adopting strong risk management strategies and response plans can help avoid loss of revenue, disruptions in operations, and any damage to the business’s reputation.

Avoid information silos: Procurement data is critical to making the right decisions. When information is not centrally available to all the key stakeholders, collecting and analysing that information becomes very cumbersome. Whether it is your vendor details, inventory status, or accounts payable or receivable, all should be centrally accessible.

Formulate a procurement policy: Purchasing is not as simple as it sounds—every demand may vary in terms of timeline, or technical specifications. Instead of making changes for every purchase process, set some common rules to make a purchase. You can define processes or SOPs for the steps involved in your procurement process. This will ensure consistency and understanding among your team members.

Improve your negotiation skills: A successful negotiation strategy is one which benefits both the business and vendors. Needless to say, negotiating a contract for some still requires many rounds of back and forth on emails, leading to loss of information and delays. Adopting centralised platforms that enable all key stakeholders to read, edit, or add comments in one place can help overcome these challenges.

Identify and assess KPIs: Procurement professionals need to have a deep understanding of the inefficiencies of their processes, how different steps or tasks are being operated, and what steps can be improved. That is why identifying and measuring key performance indicators is vital in improving procurement efficiency. However, when deciding metrics for performance, be mindful of the changing regulations.

Hire skilled talent: Skilled procurement professionals bring expertise, experience and value to the supply chain. Onboarding such a talent could help you optimise workflow, deliver results, enhance performance, and adopt better newer policies.

Optimise selection or sourcing criteria: Although it is helpful to have a broad supplier base, it is equally important to have them graded as per your quality checks and selection criteria. Clearly define their selection criteria, onboarding process, performance metrics, review processes, etc. This will help you effectively choose the right supplier for your demand. For instance, some local suppliers may be your saviour for emergencies, others for quick deliveries or high-quality materials, etc.

Define your expectations: lack of transparency is a major challenge in any procurement process. Maintaining clear communication and defining expectations right from the start can help you and the vendor to be on the same page. Also, make sure to carry out regular performance reviews so the vendors are aware of the inefficiencies and deliver as per your standards.

Adopt lean procurement: This term has become quite a buzzword over the last few years. Lean procurement primarily relies on Pull, Takt, One Piece Flow, and Zero Defects. Lean procurement practices help save time, avoid wastage, and optimise resources for improved efficiency. This all can be achieved without compromising on quality.

Embrace procurement automation tools: Digital transformation and automation are driving efficiencies and profitability across various industries and procurement is no different. Procurement management solutions can automate various manual tasks of your procurement process such as vendor management, contract management, inventory management and much more.

The procurement process, no doubt, is riddled with unique challenges that may keep the professionals on their toes. Adopt these proven tips and maximise your profitability!

Induzbuy’s smart procurement management solution is being adopted by businesses to improve their procurement efficiency and maximise profits. Know how our solution can take away mundane tasks and automate your vendor, inventory and contract management, reconciliations and much more!