And other opportunities for improvement.
Whether you are a growing small or medium size business or a start-up, you will be feeling the impact of rising costs and pressure on cash flow. This leads us to consider where and how we can make cost savings and how we can extract more value from our suppliers. Companies find themselves at a disadvantage in the market if their input costs are higher than their competitors.
All organizations, whether large or small, emerging or mature, have some potential for making savings through improvement in its procurement processes. Small and medium size enterprises often experience growth spurts at which point all efforts are focused on sales and operations.
Spending to make savings
For small and medium size companies in a growth phase, it is important to invest in better systems and processes and developing skills. The number of vendors will be expanding and need to be accredited, verbal contracts need to be formalized and staff need to be recruited and trained. This may be the time to invest in developing a procurement function and upgrading I.T infrastructure which will form the basis for improved efficiency and cost savings.
First, we need first to understand the present situation. Next, we look at processes and systems to identify savings and performance improvement opportunities and upgrade where required. Professional external help may be required at this point to implement the actions that will deliver the improvements.
1. Spend visibility
In order to effectively manage spend, we must identify what we are spending—and with whom. It may sound simple but not many organizations have complete and reliable data. Indirect spend (non-core spend such as travel, office supplies, essential services) is often sourced locally from many different suppliers and has a good potential for savings.
2. Identify opportunities
Savings of 5% - 10% per annum are usually possible where a commodity or service has never been actively sourced. Focus on understanding the Total Cost of Ownership to you, not only the original purchase price. You may be paying for warranties, transport, maintenance, support and other fees. Look at the full cost to you of owning or consuming a product or service. The original purchase price may be less than 50% of what it is costing you.
3. Build relationships with your key suppliers
Process improvements are often initiated by suppliers – they are on the receiving end of your poor administration and communication. One-way communication (telling the supplier how to do it) will not work, it needs to be a two way street. Be open to suggestions for innovation and continuous improvement and take note. A higher level of productivity is possible in both of your organizations with efficient processes that support both parties.
4. Make technology work for you
Buying software and implementing technology solutions will not introduce efficiencies if the processes currently in place are not working. First, review the processes that need improvement, fix them and only then select the solution. Suppliers appreciate an efficient purchase-to-pay process, whether it is manual or automated.
Savings through smart spending
Companies that take a longer term view and invest in spending-to-save will have an advantage in the market. Sometimes teaming with an advisor that has an unbiased view of your organization’s spend can help you spot both those quick wins and also the longer term benefits. Are you leaving money on the table?