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Are you Losing Money with your Procurement?

Some organizations are looking at procurement as a buying tool in the supply chain and those are losing money without noticing it. So, how can you avoid that?

Procurement in the supply chain is looking at different critical tasks that are linking the internal (or external) customers and the suppliers.

Basically, at the operational level procurement is composed of two main activities the Sourcing Management and the Order Management.

Sourcing Management refers to all tasks linked to detailed requirements definition with the customer, identification and selection of supplier, emission of request for quotes, negotiation with supplier of prices, and contract definition. Sourcing management must make a competitive bid analysis and take the best decision in the interest of the organization mixing various factors mainly quality, price, delivery time, payment conditions, and warranty period.

Order Management refers to the process involved in ordering goods and services, it includes functions such as the creation of a purchase order (PO), follow-up of order with supplier, and ultimately the preparation of the receiving of goods, control of received goods, and payment verification. But this extends to other functions like backorder management and return management.

Integrated with well-oiled logistics, procurement is a tremendous machine to make savings and control how and if money is correctly used. Having all procurement data on hands is the key.

To have an efficient procurement you must have the correct procedures defined and those have to articulate with your ERP and probably with your purchase portal. Without those critical tools, it is almost impossible to handle the huge amount of data and transactions needed to take the best option at each buying process and ensure all steps are registered for audit purposes.

And this audit ability aspect takes a particular relevance when organizations have strict rules and have to be ready to be audited anytime. This applies to all public entities, to a lot of private organizations, and also strongly applies to NGOs who are living from Donors money.

If you want to implement a procurement solution with or without a purchasing portal, you must ensure several critical points. Your product database has to be as detailed as possible. You cannot have a product called “fruit” or “T-shirts” or “break-shoes”. Your procedure workflow must be reflected within your ERP solution.

The solution must ensure the data input is reduced to the minimum avoiding repetition of tasks and risk of punching errors. If your procurement team takes more than 2 minutes to punch a Request for Quote or Purchase Order you certainly have something to address.

Your solution must provide automatic feedback of the status of each requisition to the customers, this will lower incoming customers calls fetching delivery updates. Your solution must deliver the right statistic to help all members of procurement to know on which they have to concentrate every day, this will speed up the performance of the team and reduce follow-up meeting duration. Finally make sure your team is well trained, understands well the procedures, and apply the best practices in supplier relationship management.

Recently at one of my customers, we were amazed when we saw that the newly trained procurement team succeeded in reducing some food expenses by +20% and a group of automotive spare parts by +10% with some reaching+20%.

Investing in Procurement solution it is planning to win!

Can you answer quickly with figures on how much your procurement team has saved this year for your organization? If not, then just imagine what represents 5% savings in all your purchased goods and you will see that it is worthwhile to act in that area.

Wish you efficient buying!

Paul Raoul Gailly

Independent Logistics & Procurement Consultant