Unlock More Value with These 5 Best Practices for Optimizing Procurement Operations

How can procurement work in an optimal manner? Can it go beyond monitoring costs and contribute in more strategic ways?

As uncertainty continues to prevail in the business environment, can procurement identify potential bottlenecks and mitigate supply-related risks?

Likewise, as regulations around sustainability become increasingly stringent, can procurement shoulder extra responsibility and incorporate sustainability goals in supplier selection?

To succeed in these endeavors and add more value to the business, there is a need to optimize the end-to-end procurement process.

A strategic approach to procurement allows you to look beyond just financial and cost-cutting goals and achieve improved productivity, lower cost structures, greater employee satisfaction and improved organizational effectiveness.

The goal is also to identify where the most significant opportunities for savings exist, and then look for solutions tailored to your needs and strategy.

Here are five steps to take a more strategic approach to procurement optimization:

1. Define Procurement Optimization Goals

The journey begins with a clear destination. Start by defining your overarching procurement goals. Ask yourself:

• What are we trying to achieve? Is it cost reduction, supplier diversification or both?
• How should we act to achieve these objectives? Do we need to standardize the onboarding of small businesses? Or simplify purchase approvals?

Then, once you’ve specified the goals, think through specific steps that will help you get there. If, for example, you want to increase the share of spending that goes to small businesses, identify ways to bring them into the fold. Think about how to find new vendors that will align with your needs.

2. Select the Right Suppliers

Not all suppliers are the same. Finding the right supplier depends on your needs, price point, location and objectives. Ask yourself the following questions to choose the best suppliers:

• Can these suppliers deliver what you want, when you want it?
• Are they financially secure?
• How long have they been established?
• Do you know anyone who can recommend them?
• Are they on any approved supplier lists from trade associations or the government?

3. Conduct the Total Cost of Ownership (TCO) Analysis

A TCO (total cost of ownership) analysis helps understand what a purchase truly costs – not only the upfront price but also related expenses such as depreciation, operating costs and maintenance.

This is the significance of TCO – it allows for efficient comparison of various options.

For instance, imagine you're evaluating a $200,000 software package with a three-year break-even point. After that, you could potentially save $25,000 annually on IT support. In this scenario, the initial investment would be outweighed by the long-term cost savings. Such insights can be gathered by conducting a TCO analysis.

Also Read: Turning Procurement Software into Solution

4. Invest in a Source-to-Pay Procurement Solution

A source-to-pay procurement software solution can help streamline your entire procurement process, from requisition to payment. It can manage everything from pre-qualification to contract negotiation and supplier management. Best procurement software leverages AI, RPA, cloud-native technology, big data analytics and more to offer benefits like:

• Spend Analysis
• Tracking Savings
• Sourcing
• Contract Management
• Supplier Management
• Procure-to-Pay

5. Embrace Diversity and Sustainability

Broadening the supplier base can also mean diversifying the number of firms that you work with. Finally, align procurement processes with sustainability goals. An often-overlooked aspect is the effect of your supplier selection and the types of materials that your firm is sourcing on environmental and social sustainability. This may even allow you to play a more active role in the corporate social responsibility objectives of your firm.

To Sum Up

Getting the most out of your procurement function boils down to setting clear goals, picking the right suppliers, conducting total cost analysis, investing in leading procurement tools, and making diversity and sustainability a priority. When you put these practices into action, you will reap benefits beyond savings.

Explore GEP’s AI-driven procurement software.