Mid-sized business leaders wear many different hats—operations such as finance, human resources, marketing, customer service, and inventory management quickly consume their time and focus. As a result, procurement often receives limited focus, a missed opportunity as handling it strategically can lead to significant reductions in operating costs.
Mid-sized businesses face a unique set of challenges as they have fewer resources and less specialization in business functions—they tend to prioritize the management of their overall business operations over specific business functions such as procurement.
This is unfortunate as mid-sized businesses with low profit margins can greatly benefit from the informed procurement strategies and automated efficiency that procure to pay solution providers offer via purpose-built technology suites.
Mid-market procure to pay solution providers now offer scalable software solutions with feature sets geared to mid-market procurement requirements, affording the same visibility, agility, analysis, integrations, and proactive controls enjoyed by larger organizations. With these options within reach, here are five digital procurement strategies that can help mid-sized organizations to raise profit margins:
1. Strengthen indirect spend management
Cost containment should be a top priority and intrinsic to your company’s culture. Gaps, however, can exist, even in the most disciplined organizations. Significant saving opportunities exist in the indirect spend category, and yet it is one of the categories that is often overlooked and underestimated.
Failing to institute policies and processes to monitor indirect spend can lead to skyrocketing costs and rampant inefficiencies. The result is the wastage of large sums of money due to undetected rogue spending—such spending accounts for 20% of an organization's total expenditures and typically manifests itself in high-frequency, low-value purchases like office supplies, which are not strategically sourced, or, inflated, uncharacterized or fictitious expenses.
Adopting a digital procurement strategy can help your business to contain costs and strengthen indirect spend management to realize untapped savings. You are probably wondering how? Today’s procure to pay solution providers offer cloud-based, automated solutions that simplify the procurement process and guide employee purchasing behavior, ensuring that they spend responsibly and heed company spending policies, wherever they are.
2. Embrace modern technology
Recently, more and more mid-sized businesses have been adopting cloud-based procurement solutions to improve the efficiency of this key function.
Technology can enhance procurement functions by integrating ERP or accounting systems, vendor PunchOut catalogs, and more. These integrations serve to streamline your procurement processes and accounts payable workflows, while enabling intuitive online shopping experiences that extend purchasing efficiency and control beyond finance and procurement departments, to teams at large.
Procurement software also drives collaboration between your employees, across departments and locations. From onboarding and approving suppliers, to escalating approval workflows and multi-level quoting steps, automated collaborative procurement efficiency is achievable in decentralized, remote and hybrid working models.
Centralized budgetary data empowers authorized users to make informed decisions and they’re notified when action is required, or alerted of potential risk factors via email, web, or mobile app notifications.
These features combined, go a long way in ensuring that purchase requests and expense reports are always approved, compliant, and within budget.
Fostering a responsible spend culture is easy with the right approach and tools to support your spend management strategy.
3. Develop a strategic sourcing plan
An organization seeking to enhance the efficiency of its procurement process still needs to focus on establishing a sourcing plan for its indirect spending. To achieve this, begin by looking at the entire picture to determine savings opportunities within your supplier base. Assess areas to establish more collaborative and favorable vendor relationships.
Performing an extensive analysis of procurement processes will help formulate a plan that encompasses market research, organizational goals, indirect supplier performance criteria, and a detailed SRM strategy.
In the process of developing your strategic sourcing plan, ensure that it addresses current procurement challenges, including indirect spend management issues. The solutions to existing challenges could include using procure to pay solution providers or adopting an alternative approach to managing contracts, invoice processing, and purchasing and approval protocols. It could also involve implementing an alternative supplier program for indirect procurement or establishing new policies to ensure that spend only occurs with approved or contracted suppliers.
The use of solution-enabled internal catalogs or vendor PunchOut catalog integration can facilitate this move to strategic supplier management, eliminate rogue spending, and set your business up to achieve sustainable savings.
Negotiating best value contracts with preferred suppliers and channeling business spend accordingly will ultimately improve your purchasing power and open the door for more favorable payment terms, volume discounts and early settlement concessions.
4. Improve spend transparency & visibility
Indirect spend is usually fragmented across an organization. It occurs at all levels, is carried out by numerous stakeholders and can extend to massive contracts for corporate travel, catering, marketing, professional services, and IT spend.
To optimize procurement management, you’ll need to gain complete visibility into procurement processes and spending behavior. To gain such visibility, leverage software that offers advanced spend analytics, business intelligence reporting tools and audit trails of all activities, approvals, and transactions.
Doing this allows you to:
• Analyze spend by employee, budget, and supplier
• Gain transactional spending insights
• Measure processing costs
• Determine price variations between suppliers
• Identify top performing suppliers and consolidate your supplier base
• Identify cost savings and growth opportunities
• Adjust budgets accordingly
You’ll no longer have to make decisions blindly, instead you’re equipped to make data-driven decisions that are impactful, and lead to the best business outcomes.
5. Get your company on board
One major challenge of the procurement process, especially with indirect spend management, is that a significant portion of this procurement is usually undertaken by non-procurement professionals. When businesses fail to establish, communicate, or enforce their procurement policies, non-compliance typically prevails. This can lead to unauthorized spending and higher procurement costs for your business.
It is essential that procurement professionals communicate the company's digital procurement strategy. Educate the organization on why they must follow the digital procurement policies or implement digital procurement software that enforces policy and contract compliance. You should also institute key performance metrics that monitor and assess compliance.
Lastly, more often than not, companies assign junior procurement professionals to oversee indirect spend—and such measures diminish the significance of this aspect of procurement. Assigning seasoned procurement professionals adept with various digital procurement management strategies will ensure that your company's indirect procurement process is optimized and contributes to higher profit margins.
A digital procurement strategy that never fails: Partnering with an established procure to pay solution provider
Times have changed—in previous years a mid-sized business could get by without putting much emphasis on the procurement function. With today’s remote and hybrid work models, agile procurement and adequate tools are required to achieve spend visibility, operational efficiency, compliance, and ultimately, cost containment.
Mid-sized business can drive procurement efficiency by developing an effective digital procurement strategy. Procure to pay solution providers like Fraxion can provide you with the tools to digitize your procurement process and raise your profit margins through proactive spend management. Learn more, request a custom demo today.