Chaos or Efficiency in the Procurement Process? How much is this Hurting Your Bottom Line?
Entrepreneurs can operate in chaos and many thrive in it. As a business grows systems are developed to manage key parts of the operations. Procurement is often the last area to be addressed. Based on my experience many businesses even very large ones still operate procurement in a chaotic manner. CFOs and CPOs want efficiency in purchasing because they know the impact on the bottom line will be significant. The benefits of getting control of the procurement beast exist for companies with $20 million in sales to multi-billion dollar enterprises.
Here are just some of the issues that are likely to impact your strategic procurement plan:
- Sourcing teams utilize offline tools like Excel, Word, Google Docs and email to manage the RFP process. The staff is comfortable with these tools even though it takes a lot more time to manage each event.
- Reliance on offline tools results in critical knowledge disappearing when people leave the company, are transferred or promoted due to a lack of documentation.
- Financial, purchasing and payment systems aren’t built to share information at the SKU, item or commodity level due primarily to the inability to code at this level.
- Sourcing responsibility is spread across divisions, groups and profit centers with little if any summary reporting or analysis among multiple spend owners.
- Controllable spend is an educated guess due to the time-consuming manual effort required to create consolidated reports for the entire organization.
- Uniform and documented RFP/RFQ systems or processes for key contracts and purchase categories don’t exist for the organization as a whole.
- Headcount reductions have saved salaries and benefits at the expense of the much larger cost savings opportunities in strategic cost management.
For many CFOs and CPOs the challenges can be overwhelming.
I recently started on a project for an organization with approximately $20 million in revenue.
- They are very aware of their key spend categories but were not aware that systems exist that can make their life and their results better. Due to the nature of their business some spend categories have multiple requirements that are not financial in nature so we are starting with a less complicated purchase.
- The spend category that I will assist them with is a commodity that they buy every year. The cloud-based RFP process will help them take a chaotic purchase and make it much more efficient. The analysis and management of the process should take 30% less time this year and 40% to 50% less time in future years. The cost savings are expected to be gained through a reverse auction. There are multiple competitors for this commodity that are interested in securing this organizations business because of the size and recurring nature of the process.
- The chief executive is very interested in the results because he understands that there are other opportunities to streamline procurement in the organization.
This same process is being used by a company with $2 billion in spend. They ran an auction for a key category that they knew was out of control.
The approach I have reviewed is an easy way to take control of the chaos.
It works for me too since I prefer to dip my toe before saying that I have the immediate answer for all of the issues listed above.
Action Step: What would be a good next step if these issues sound familiar?
It should be pretty easy to identify several commodity spend categories that are out of control or seem to be.
EC Sourcing Group is one of the companies I represent because they help procurement teams deliver quantifiable cost and time savings. If you want to know how, I invite you to request a demo or 30 minute discovery conversation so you can experience the platform, process, people, and tools. You can reach me at 973-936-9672.
Next week I will continue on this same theme so your organization can improve your bottom line.
If you would like to know more ways to reduce costs without changing the way you do business simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life