How procurement can enhance profitability

by Elizabeth Cattanach

It’s no secret companies spend a ton of money on procurement. But if organizations want to increase their profitability and bolster their bottom lines, they need to get their costs under controlas much as they possibly can.

When procurement isn’t managed properly, organizations can lose an incredible amount of money. Case in point? A recent Financial Times report claims that the British government is wasting “billions” of pounds on procurement simply because they aren’t tracking their expenses to the point they have no idea how much they are spending on various services.

While governments relying on public money might be able to get away with spending more than they need to spend to acquire the goods and services necessary to fulfill their missions, companies in the private sector do not have anywhere near that kind of luxury. When businesses don’t manage their spend efficiently for an extended period, it’s only a matter of time before they’re forced to shut their doors as they lose ground to their competitors.

The good news is that with the right approach, you can increase your procurement profitability and therefore help move your company into a much more secure financial situation. By using modern procurement solutions, companies can reclaim control over their entire procurement process and make sure they reduce their expenses as much as possible.

5 ways to increase procurement profitability:

  • Stay on top of discounts. There’s no sense in paying even a few dollars more than you absolutely need to for any supplies and materials your company must have to serve its customers. With a modern procurement system in place, managers get the peace of mind that comes with knowing they will always be taking advantage of the discounts available to them. Reducing costs increases procurement profitability.
  • Find documents and purchase orders (PO) easily. Time is money. If you and your team have to spend a ton of time tracking down POs and other procurement-related documents, you won’t be able to invest as many resources into negotiating pricing, measuring performance, and otherwise improving your procurement profitability. Digitalize your procurement documents and reclaim significant chunks of your day.
  • Consolidate shipments. Companies need to group supplies and materials into as few shipments as possible. Since it costs an average of $429 to process each purchase order, companies need to figure out what they can do to make sure they are sending out POs as efficiently as they can. The last thing you want to do is send out two different POs for the same items. With procurement software in place, you’re able to easily see whether any particular shipments can be consolidated, thereby reducing your shipping costs considerably.
  • Maintain the right inventory levels. You don’t want to have too much inventory on hand. Not only does excess inventory clog up stores, factories, and warehouses, it also ties up a lot of your liquid cash. On the other hand, when customers want to place orders, you don’t want to have a shortage of inventory. In a perfect world, procurement teams would be able to maintain the precise level of inventory needed at any given time. While procurement software might not prevent you from ordering too much or too little of a certain item every single time, it drastically reduces the chances you make the wrong decision with respect to inventory levels.
  • Streamline the entire process. Don’t make the procurement process any more difficult than it needs to be. With the right procurement tools in place, the entire process becomes much simpler. Once you have a stronger handle on procurement, your team will be able to focus on other value-adding functions of their jobs. For example, by streamlining the procurement process and making your employees’ jobs easier, you then have more time to invest in team-building activities that help your workers get to know each other a little better; doing so makes your team even stronger and more effective.

If you want to increase your company’s profitability, you need to increase your procurement profitability—it’s as simple as that. And with the right tools at your disposal, it's easily accomplished.

By using technology to continually optimize your procurement process, you can ensure you’re getting your money’s worth and not burning any cash unnecessarily. With more money in the bank, your company can provide better value to shareholders, customers, and employees alike.


Elizabeth Cattanach

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