The importance of procurement in enhancing business profitability

Effective procurement is a tactical goal for most businesses, and for good reason. Procurement is a strategic function aimed at improving an organization's profitability – if managed proactively, procurement processes can drive business value and bottom line growth. McKinsey & Company reported that high-performing procurement functions helped companies recover after the 2008 global financial crisis. So, how can procurement add value and contribute to increasing profits in your business?

First and foremost, reducing costs is the best way to maximize business profitability. Any business looking to increase profitability needs to implement effective procurement processes that preserve cash, reduce the risk of fraud and eliminate rogue spending. 

When procurement isn’t managed effectively, businesses can lose substantial amounts of money. According to the Chartered Institute of Procurement and Supply (CIPS), organizations can spend more than two thirds of revenue on procurement, so even small cost reductions can have a significant impact on profitability. 

7 procurement improvement ideas to boost organizational profitability

The good news is that with the right procurement tools and approach, the purchasing function can easily make a significant contribution to profitability and secure your company’s financial prosperity. By using digital procurement software, you can regain control over the entire procurement process and drive cost reductions that enable sustainable savings, and overall growth.

1. Streamlining procurement processes for efficiency

Fast-track your workflows with automation. With the right procurement tools in place, processes are simplified and productivity is enhanced, reducing the time spent on repetitive or multi-touchpoint tasks. Staff have more time to focus on strategic initiatives as automated workflows replace admin-intensive processes and ensure that the relevant users are notified when action is required. 

2. Centralizing procurement data for better decision-making

Time is money. If you and your team have to spend hours 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. Digitize your procurement documents, enable two or three-way invoice matching and reclaim hours in your day.  

3. Gain more spend under management

Ensure that your team purchases from contracted vendors. Pre-negotiate best value contracts and channel all spend accordingly to ensure that you’re always purchasing goods and services at the best price. 

Digital procurement software ensures that purchasing only occurs with these approved high-performing vendors and eliminates rogue spend. Solutions that enable RFQs, internal and vendor PunchOut catalogs further enhance your opportunities to save and increase spend under management with preferred suppliers. 

4. Qualify for more purchase discounts

With faster, automated and ERP-integrated processes, you can get invoices approved and ensure timely payments that improve vendor relationships and cost saving opportunities. 

With technology-enabled spend visibility, analytics and reporting capabilities, you can leverage your data to negotiate volume discounts, early settlement dates and price concessions.

5. Consolidate purchase orders

Procurement research shows that purchase order processing costs vary by industry and can exceed $700 per PO in some cases. Companies need to make sure they are submitting POs as efficiently as possible to reduce costs.

With procurement software in place, you can centralize and consolidate orders for multiple users, departments or branches, thereby reducing your processing costs and gaining access to better deals and discounts. Another prime example of how the purchasing function can impact profitability.

6. Change spending behavior

Promote a responsible spending culture and improve spending behavior. A digital procurement tool is effective in ensuring cost-conscious accountability and empowering users to make better decisions when it comes to spending. 

With access to mobile apps and web-browsers there’s no excuse for not submitting a purchase or expense request, and the rule should simply be that spending and reimbursements cannot take place without a system-approved purchase or expense request.

This proactive approach to spend management is a surefire way for procurement to contribute to increasing profits.

7. Mitigate risk 

With procurement software it’s easy to ensure that company spending policies and procedures are adhered to. Configure your delegation of authority, approval rules, spending limits, and more for purchase requisitions and expense reports. Alerts and in-app notifications will flag any breaches of policy or noncompliance.

Authorized managers can review the impact of spend against budgets before approving requests. This insight informs decision-making and enables effective cost control.

The risk of fraud is reduced as accountability, audit trails, escalating approval workflows and overarching transparency across purchasing and expense reports deters would-be fraudsters from attempting any rogue purchasing activities.

Make procurement savings easy with technology

These cost reductions, accountability and efficiency gains combined all lead to measurable procurement savings that contribute to increasing profits. 

By using digital procurement software to continually optimize your procurement process, you can be certain that you’re getting the best deals, maximizing your contracts and curbing wasteful or unauthorized expenditure. As the procurement function is measured on cost savings, not revenue-assurance, adopting a cost-conscious spend culture will enhance profitability and ensure your business is prepared for any economic eventuality going forward. Reviewing software solutions and choosing the best procurement software for your business needs is an important task. Click here for tips on how to initiate your procurement software search.

Want to learn exactly how procurement solutions like Fraxion enable business profitability? Click here to read about all of the available features.

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