Many companies today are listing procurement management as their top purchasing priority since it makes up a large proportion of their overall spend. At the same time, many of these same companies have fallen behind in regards to their procurement systems and need a complete revamp of their functions to keep up with business demands. Below we outline 6 Best Practices to make sure your company's procurement management is up to date:
Create Transparency in Spending
Achieving operational efficiency and cost savings begins with creating transparency in your spending. It's a major key in minimizing the risk for fraud and ensuring accountability with your suppliers. Here are a few key steps to ensure you have transparency in your procurement process:
- Create clear and understandable procurement contracts
- Keep records! Monitor & document every key step in your procurement process
- Identify and properly manage your list of trustworthy suppliers
- Conduct frequent audits
- Properly define & implement your procurement policies
It's important to properly utilize data analytics & automation to eliminate risky purchasing which can hurt your company. There are various procurement technologies available to offer a clear understanding of the procure-to-pay-cycle.
Engage with Suppliers
Every manufacturing company has a list of suppliers crucial to their business. Whether it be for one-time urgent repairs, performing specialty services, delivering essential products, or scheduling regular maintenance, each specific vendor plays a role in the completion of the end product that generates you revenue.
There is a lot that goes into engaging with your suppliers. You have to first identify a list of potential suppliers, then continue to onboard the most viable vendors. Next you have to schedule the service to be performed, obtain the invoice for the products/services, and lastly pay the vendor. This is a lot to take in especially if you plan on performing these tasks manually. Something as simple as submitting a single vendor invoice can take as much as several hours of your day.
Here are some steps that your organization can take to improve supplier engagement:
- Establish KPI's to monitor your supplier's performance
- Set yourself and your suppliers up for success and establish trust
- Think of your suppliers as strategic partners
- Allow for easy collaboration & communication with vendors
Optimize your Inventory Levels
One of the best ways for an organization to control spending and improve their bottom line is to focus on their procurement process. A company's procurement team needs to constantly check their inventory and aim to make sure the levels stay optimal.
It's common knowledge that holding more inventory leads to higher costs. It makes more sense for organizations to save money and order the items when they need them rather than sit on excess inventory. The main cause for poor inventory levels will come down to improper planning and forecasting. Having better and more accurate data-driven insights can solve this.
Here are a few questions you should ask yourself when determining whether your organization's inventory levels are optimized or not:
- Do ALL of our purchase orders sync up with our inventory levels?
- Did we purchase more than we need to?
- Did we purchase less than we need to?
- How often should we be purchasing to maintain optimal levels of inventory?
- What is our ideal ratio of operating inventory in relation to excess stock, safety, and replenishment?
Take "Green" Initiatives Seriously
In this day in age with the backlash of companies contributing to high carbon emissions and global warming, organization's are pushing for stricter environmental laws and regulations. Reducing your company's carbon footprint is no longer an optional choice, but a necessary practice.
One thing to keep in mind when searching for suppliers as a procurement manager is to research if the organization you seek to buy from is taking environmental impact into consideration. Organizations today are now producing reports that evaluate "green" companies. More and more RFP's today are also requesting that the supplier provide information about their green initiatives.
Establish a Contract Management Process
Did you know that 81% of organizations don't use a Contract Lifecycle Management (CLM) software? As a result, these organizations face obstacles such as a lack of consistency across their suppliers, lackluster processing capabilities, and an overall continuity problem with their supply chain.
One solution for these organizations is by moving their contract management process to the cloud. Storing these contracts in a centralized database allows organizations to optimize their spend, bring down costs, and lower their overall risk.
Here are some of the benefits to utilizing a contract management automation platform:
- Configurable interface
- Performance monitoring
- Automated notifications
- Central repository
Component Sourcing International provides supply chain solutions for unique manufacturing challenges by lowering your costs and improving your productivity. We give you both the peace of mind and confidence to know that your finished products will be of the utmost quality and at the best pricing the world has to offer. To learn more about how CSI can act as your Global Sourcing Integrator, contact us today.
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