Reducing the purchasing cycle has hidden cost-savings benefits. How efficiency gains saved an organization from throwing labor dollars
When was the last time your organization upgraded its procurement system?
If you’re not sure—or you know you’ve been doing things the same way for a long time—you’re almost certainly losing ground to your competitors who have modernized their approach to procurement.
In today’s fast-paced business world, slower companies are simply unable to compete effectively over the long term. So if you find yourself scratching your head wondering why it takes your company so long to buy something, it’s probably time to make some changes.
For the most part, organizations move slowly because they rely on antiquated systems. It’s no different in the world of procurement.
With that in mind, let’s take a look at five typical procurement processes that are outdated. If any of these sound familiar, it’s time to consider overhauling your purchasing process.
Using paper-based systems
Paper-based procurement systems helped a lot of companies manage purchasing for many years.
While you may still be able to kind of get by with the legacy systems, you can be certain your competitors have upgraded away from them—putting your company at a real disadvantage.
For starters, paper-based systems open the door for human error; employees might end up filling out forms with the wrong information, for example. There’s also a pretty good chance that important documents get misplaced and workers have to spend a ton of time tracking them down.
If you’re using a paper-based procurement system, there is no chance that you’ll be able to get full visibility into your procurement processes. As a result, you can be certain that there’s a lot of waste (e.g., rogue spending and fraud) that you won’t be able to see.
Using spreadsheets to manage procurement
Understanding that paper-based systems don’t provide much utility—if any—many companies have since shifted to a spreadsheet-based procurement management system.
While this is certainly a move in the right direction, there are a number of critical procurement issues you won’t be able to find in spreadsheets, including:
- Maverick spending
- Procedural inefficiencies
Again, it makes sense to assume that your competitors have migrated to a modern procurement system—which means they have access to all of these metrics. To keep pace, you need to know them as well.
Requiring multiple people to sign-off on every expenditure—even routine ones
It’s one thing to require several purchasing managers to sign off on big-ticket items or inaugural expenditures that are expected to become routine. It’s quite another to require several people to sign off on every single purchase that’s made at your organization.
Study your procurement policies to see whether you’re requiring too many people to sign off on each purchase. If, for example, three people need to sign something before a purchase order is finalized, what happens when one of those people is on vacation? With an outdated process, that could mean days of downtime living without critical components your team needs to do their jobs.
Keeping track of inventory by hand
In the old days, procurement managers would keep track of inventory using a tried-and-true method: counting product by hand. Not only is this an extremely inefficient way to do things, it’s only a matter of time before human error creeps into the picture.
Simply put—you need a modern procurement platform to keep track of your inventory. Any other way just isn’t good enough.
Relying on an outdated procurement software system that hasn’t been updated in years
As a general rule: If you haven’t updated your procurement processes in several years—or you’re not sure if they’ve ever been updated—it’s safe to say you’re long overdue.
Get in the habit of assessing your procurement process on a regular basis (e.g., once or twice a year) to determine whether any updates could be made to optimize it further. That way, you won’t have to worry about any old ideas and policies holding your company back.
Benefits of improving your procurement system
Change is hard, but the benefits your company stands to experience by upgrading procurement systems greatly outweigh any benefits of remaining with the outdated system. Not only will you see an improved competitive edge, but you’ll see real return on investment, thanks to these effects:
Does your company do a good job detecting fraud? Do you have any safeguards in place that eliminate or reduce the likelihood that any fraudulent purchases are made? Old procurement systems—whether they’re paper-based or reliant on spreadsheets—make it much more difficult to identify fraudulent purchases. With new procurement tools in place, however, you won’t have to worry as much about unauthorized purchases taking significant bites out of your bottom line.
Decreased rogue spending
More than half of employees surveyed admitted that they’ve gone rogue before—buying something without going through the proper authorization channels. Rogue or maverick spending is a major problem for most large organizations. With a modern procurement solution in place, your company can drastically reduce rogue spending. In fact, one report found that a reduction of 5 percent to 10 percent in rogue spending can translate into millions of dollars in savings.
The average large firm wastes upward of $14 million each year due to clunky procurement strategies and systems, according to CEB. If you’re still using an outdated procurement system to manage your company’s purchases, you are wasting a lot of money that could be saved by simply leveraging new tools designed to optimize the process.
According to APQC, today’s fastest companies are able to submit purchase orders in five hours or less, while slower-moving organizations might take almost two business days to do the same. If your procurement system is out of date, odds are that your company falls on the slower end of the spectrum. On the flip side, with a modern system in place, you are able to accelerate the requisition process—enabling your company to innovate faster and deliver more value to your customers.
Increased employee engagement
If you had the choice, would you rather work somewhere that relied on outdated tools and technologies? Or would you prefer working somewhere that always invested in modern platforms? Migrating to a robust procurement solution is a surefire way to reduce employee stress while increasing productivity and engagement. Not only do such systems make work easier for your procurement department, but they also help your employees learn new skills that they can use to advance in their careers. By investing in a modern procurement system, your company will benefit from happier employees who get more done. Expect to see lower turnover, too.
How to update your procurement system
If you’ve decided to update your company’s approach to procurement, the good news is that it’s pretty straightforward.
First, you need to invest in a modern e-procurement platform that simplifies the entire purchasing process.
Next, you need to overhaul your policies and procedures to make sure that your requisition approach is as streamlined as it can be. For example, if your company requires three people to sign off on every purchase order—even routine recurring ones—it is probably time to develop a new policy that simplifies these kinds of orders. Take the previous example for instance—spend management software can easily help you set spend limits, reduce approval strain by narrowing it to one approver and automating the approval process for quick turnaround.
Finally, once you’ve deployed a new procurement system and updated your policies, it’s time to make sure every member of your purchasing department is up to speed with the new system. Invest adequately in training so that each employee knows how he or she can get the most out of the new technology. Best practices say that you should solicit feedback from your employees at regular intervals (e.g., once a quarter) to determine if they have any ideas to improve purchasing even further.