How to efficiently reduce costs, increase profit and improve quality and value in your organization – Interview with Sabina Custura
Do you want to reduce your costs and increase your profit? Do you want to get more value with less costs? Do you have issues with your suppliers and want to have better relationships with them? Do you want to improve the quality and delivery time of your purchases? …All with less effort and internal resources? If your answer is yes, then I propose you to set-up a strong Procurement & Supply Chain activity in your organization.
I know many companies don’t focus so much on Procurement & Supply Chain as Marketing & Sales take all the energy, but Sales & Supply Chain go hand-in-hand and in order to be successful, you need to focus on both. In vain you try to overachieve sales targets, gain more market share and increase profit, if you leave money on the table during negotiations with suppliers, or if your suppliers provide lower quality products, or if your time-to-market gets delayed because suppliers are not sticking to their delivery times.
Sales & Marketing are one side of your success coin while Procurement & Supply Chain management are the other side.
Procurement & Supply Chain impact the organization success, as supply costs directly affect the P&L and the value chain you provide to customers. Without proper processes and procedures for Procurement and without employees properly trained on procurement best-practices, you can miss some great opportunities, have increased costs, leave money on the table, have lower quality products or increase time-to-market.
I hope I got your attention on how important is Procurement & Supply Chain for any organization. Now I propose you to do a Procurement health-check and analyze how strong is your company from Procurement perspective.
Bellow you will find a set of 5 questions that also represent 5 most important Best-practices in Procurement, that Best-in-class organizations recognized and implemented.
- Do you have proper policies and procedures that cover the Procurement process – ideally the entire Procure-to-Pay process?
Procurement, as other functions within your organization, should be covered by a simple and clear Policy and/or Procedure in order to provide all employees with same guidelines, rules and responsibilities. The procurement procedure should include a standardized process from defining the need to invoice payment, a clear approval flow on different milestones, procurement strategies for supplier selection (like Request-for-Proposal, Request-for-Information, e-Auctions, Direct or Single Source Negotiations), clear responsibilities for all participants in procurement process & segregation of duties, and clear timelines. A special chapter in your Procurement Policy should cover ethical procurement practices and Code-of-Conduct for your employees and your suppliers.
- Do you have the right IT systems in place that covers procurement process and relationship with suppliers?
Procurement Software Solutions implemented in different companies vary from All-in-one solutions (including e-Sourcing, e-Procurement, Procure-to-Pay and Contract management tools) to only few ERP Modules that cover part of procurement activities. Of course, decision of what software solution will support your procurement activity depends on the situation and needs of every company, but all organizations should have in place at least a basic Supply Management System. And the better the system is, the more success you will have in your procurement activity.
A proper Procurement system improves efficiency by reducing significantly the workload in different stages of the process, increases control and transparency on your costs and activity with suppliers, and increases the value brought into your organization by reducing your costs, improving quality and delivery. Without proper data provided by the right system, you will never get same results from suppliers, no matter how great your negotiation skills are.
We live in the digital area and we use technology in all activities in our live, so why not implement a procurement system that can will enhance your company results easier and faster.
- Do you proper centralize your needs, standardize and sign centralized long-term contracts with suppliers?
Centralization and standardization are two of the best-practices that you can implements in order to obtain significant cost reduction, improve quality and delivery times. It increases your negotiation power and the attractiveness of your company in front of suppliers. It significantly reduces your purchasing costs and increases the efficiency of procurement process.
- Do you have a Supplier Relationship Management in place that evaluate and constantly improve relationship with main suppliers?
How well do you know your suppliers? How do you mitigate risks with your suppliers? How do you evaluate supplier performance and take corrective actions? How can you get constantly more value from your top suppliers? Do you apply Pareto rule on your suppliers and focus on top 20% in order to get higher quality, lower costs and better delivery times? All these points should be part of your Supplier Relationship Management process.
- Are your employees trained and updated on latest procurement best practices and negotiation strategies?
Do your employees have the best tools and tactics to get best results in procurement and negotiation? There is a great saying that I like “What happens if we train employees and they leave? But what happens if we don’t and they stay?” Everybody can learn procurement on the job and by trial and error, but why not speed up the learning process and learn from others that did it before and are experts in this field?
Think a little bit about these questions and if you see improvement areas for your company, we propose you a detailed training on Procurement& Negotiation Best Practices, taking place on 3-4 April at MSM RO HQ. Check out the agenda and secure your place.