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Procurement: Ways to improve company profits through procurement
Mr Stanslus Kabuyaga
What you need to know:
- “The procurement function ensures that only necessary purchases are made through cultivation of a rigorous ‘spend challenge’ culture with user departments to cut down on excess costs to deliver sustainable savings.
Organising procurement across multiple levels of any organisation can be a daunting task, even worse in the face of fluctuating budgets and varying demands across an organisation.
With more than 65 percent of company expenditure directly going through the procurement function, contemporary organisations expect the procurement function to create and deliver savings and best value for money (BVFM) through driving down costs on a whole life cycle basis, identifying peculiar spend optimisation opportunities, extracting value from supplier relationships and reducing supply chain vulnerabilities as much as possible so as to contribute to company bottom-line and profitability.
In order to effectively unlock value for the company in this area, the function ought to focus on the following key issues; ensuring that all continuing services and transactional spend is covered by signed and valid contracts with the respective preferred suppliers.
Closely collaborate with your suppliers to identify savings opportunities such as changing the timing of certain purchasing decisions to take advantage of market changes. It might be a case of opportunities for volume discounts or something else.
Performing detailed financial analysis of both whole-of-life costs and transaction costs would be needed to assess value for money in large budget procurements. When conducting evaluations, especially of a CAPEX nature, look beyond the obvious acquisition costs and include operating costs, maintenance costs, modification costs, support costs and the attendant disposal costs.
Taking advantage of the savings opportunities that exist in the consolidated company purchases and delivery aggregation. This, however, comes with careful and intentional planning stocks and orders. This also reduces management time spent on processing multiple and repetitive documentation of smaller orders of related requirements.
Reviewing purchasing requirements. The procurement function ensures that only necessary purchases are made through cultivation of a rigorous ‘spend challenge’ culture with user departments to cut down on excess costs to deliver sustainable savings.
Whilst stock can be a buffer against supply risk. Stock left in warehouses is “dead money”. It costs money to store, can deteriorate and become obsolete. Consider more creative ways of guaranteeing stock through such practices as Vendor managed Inventory (VMI) based on framework contracts with preferred suppliers.
It’s important to ask the right question “Is it possible to buy a lower spec that will do the same job?” Sometimes, companies are guilty of ‘over buying’ because of less investment in market research and need analysis.
Renewing items only when necessary, and not as a routine replacement. Take care to factor in the cost of waiting for a replacement. So, it is necessary to replace an important machinery part on a regular basis but it is not necessary to replace most lights before they fail.
Deploying an e-procurement system is a costly project but the benefits that accrue from this initiative are worth the investment.
A company is able to streamline its purchasing operations, better track expenditure, simplify the procurement process and empower not only the procurement staff but also the user departments that gain the ability to take control of their budgets.
In conclusion, while the role of driving savings through procurement rests squarely on with the procurement function, everyone in the company has an opportunity to contribute and influence the company’s spend landscape and hence improve the bottom-line of the organisation.
Mr Stanslus Kabuyaga, MCIPS is a procurement manager at BRAC Uganda Bank Limited
[email protected]
