How to improve your procurement spending
16 November 2022
One of your biggest areas of business expenditure will be buying the goods and services that you need to operate the business. Whether these are raw materials, wholesale goods, or cloud services, you need someone to be in control of this procurement process.
Managing your procurement spending is a vital part of keeping the business cost-effective and competitive in the market. If you’re overspending on materials, or paying over the odds to your delivery partner, this can soon have a significant impact on your bottom line. How, then, do you get on top of this procurement spending and start becoming more efficient?
5 key ways to enhance your procurement spending
Managing cash flow is all about balancing out your cash inflows against your cash outflows. If your procurement costs are high, it will be very difficult to maintain a positive cash position, so reducing your costs, and agreeing better terms is all part of the procurement process.
In short, the less cash that’s burnt up in procurement costs, the better your business’ overall financial position will be. So, how do you go about reducing these costs?
Here are 5 key ideas to focus on:
- Reduce your base cost per item – where you’re buying in goods, one of the most important costs to consider is your basic cost per unit. This price is probably the most difficult cost to alter, but there are ways to reduce it. Get quotes from a variety of suppliers and look for the supplier that offers the best mix of value, quality and reliability, at an economical price. Negotiating with competing suppliers can help to knock the price down further, helping you cut that initial base cost, and reduce your everyday spending.
- Cut your logistics and delivery costs – when dealing with physical goods, these items will need to be transported to your premises and/or delivered to your end customers. These transport costs are unavoidable, but can be reduced as part of the procurement process. Look for well-priced carriers and logistics providers and see if their base prices can be negotiated down. Ask about discounts for faster payment, or options for joining a preferred customer programme, to help reduce prices. If you can offer a long-term relationship with the carrier, this can result in greater trust and openness over time, and more potential for negotiating price reductions.
- Nurture the best supplier relationships – the foundation for good procurement management is building solid relationships with your suppliers. The more stable your supply chain is, and the deeper the trust between you and your supplier partners, the easier it will be to negotiate good terms, beneficial prices, and flexible contracts. Nurture these relationships, pay on time, and set a good reputation with these suppliers. When renegotiating prices to cut costs, this will be far easier to do with solid foundations supporting your business relationship.
- Reduce tax and duty costs – depending on which goods and services you’re selling, there will be certain territory-specific taxes and duties to pay when buying and transporting goods. If you engage a tax adviser with industry-specific knowledge, they’ll be able to check that you’re paying the right taxes on your goods/services, and that they’re correctly categorised for taxes like VAT or GST. Working with a customs broker can also help to organise and streamline the customs process, and ensures that you’re paying the correct duty on all your imports and exports.
- Using tech to get in control of procurement – in the modern digital world, there are plenty of cloud-based procurement solutions to help enhance the management of your processes. Having all your procurement information in one place, accessible 24/7, in the cloud, has huge advantages. You can streamline your internal processes, manage risk more effectively, and regularly check your spending against budgets, cash flow, and expected expenditure. Where there are big variances, or instances of overspending, you can quickly take action to reduce the problem – by putting caps on spending, or switching to new suppliers that offer a more cost-effective option.
Talk to us about your procurement management
When you’re in control of your procurement spending, that’s good news for your cash flow, your end profits, and the long-term health of your supplier relationships.
Getting in control of your budgets, expenditure and overall spend management is a big part of the procurement process, and an area where we can help guide you in the right direction.
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