How to Lower Business Procurement Costs

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Procurement is a vital business process that involves the acquisition of resources necessary to keep daily operations running smoothly. Letting your procurement costs get out of control can be detrimental to the bottom line of your business and company culture. Here is a look at a few smart ways to reduce your procurement costs.

Procurement is a vital business process that involves the acquisition of resources necessary to keep daily operations running smoothly. This could range from products as simple as staplers to complex IT equipment and everything in between. Letting your procurement costs get out of control can be detrimental to the bottom line of your business and company culture. Here is a look at a few smart ways to reduce your procurement costs.

Harness Data

Without the proper data to back up your decisions, it can be hard to know where you are over underspending. Finding an effective way to record and visualize your spending analytics is vital to making smart decisions about your procurement processes. Doing so can help reduce risk, offer strategic insights, and help you develop a strong case for negotiating with suppliers. Learning to harness the proper technology to better understand your procurement needs and expenses can go a long way toward helping you reduce unscary costs and get the best deals for your money.

Negotiate with Vendors

Negotiating with the vendors supplying your products is another way that you can effectively cut back on procurement costs. Whether it’s buying in bulk, switching to a different brand, or simply requesting a lower price for being a loyal customer, there are always ways that you can negotiate with vendors to secure a better deal on goods. This is where having a decent grasp of your spending analytics will be beneficial. Backing up your requests with hard data can go a long way toward securing a discount, especially if you’ve been a good customer. Solid negotiating skills are also necessary, but this will be easier if you have the numbers to back up your requests.

Consolidate Suppliers or Deliveries

Another smart strategy for reducing procurement costs is to consolidate suppliers or deliveries. If you are using several different vendors to source your products, you are likely to pay more in transaction and delivery fees than if you purchased everything from one source. Of course, there may be a reason that you need to contract several different suppliers. Perhaps your coffee vendor doesn’t offer printer paper or toner and it isn’t feasible to rely on one source for all your procurement needs. But wherever possible, consolidate suppliers and deliveries because the extra expenses can add up over time.

Reduce Maverick Spending

Occasionally you run out of a necessary item and you need to make purchases outside of agreed contracts. Say, for instance, you suddenly run out of toilet paper and your next shipment isn’t expected for another two weeks. You don’t have much choice but to order more, even if it’s outside of your regular contract. This is known as maverick spending and it should be avoided as much as possible if you’re looking to reduce procurement costs. This type of spending is time-consuming, inefficient, and expensive. While the occasional maverick spend may be unavoidable, you should seek to keep these incidents to a minimum. Having a solid grasp of your spending analytics is a good way to avoid unpredictable spending. If you notice you often run out of a necessary product, it may be wise to increase the amount you order with each regular shipment. Even if you end up with overstock, it’s likely cheaper to have extra supplies available in the event of an emergency than to be consistently placing orders outside of your contract.

Outsource Your Procurement Strategies 

If you are struggling with lowing procurement costs on your own, it may be wise to seek outside help. A group purchasing organization or GPO can help you find the savings you’re after without any of the hassles. These companies have already established relationships with quality vendors and buy products in bulk to pass along to their clients. If you are a small company without a dedicated procurement manager or you simply don’t have the time or resources to put into developing a proper strategy, a GPO can help. They make the process organized and effective, so you never have to worry about overspending or missing out on deals.


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