While almost every business relies heavily on procurement to run and be successful, many only scratch the surface of cost optimisation while maximising on efficiency.
This doesn’t mean that the cost of procurement is unimportant to businesses. In fact, research shows that cost reduction is the top priority amongst 79% of CPOs (chief procurement officers), followed by new product development, increasing cash flow and lastly, organic expansion.
So why is procurement costing so much for so many? Is it simply the only way we can conduct our procurement, or are there untapped strategies we can implement to save money that can be reinvested into other areas of the business, such as product innovation?
This article explores why cost optimisation is more important than ever and what more you can be doing to minimise these expenses as part of building a more lucrative business.
Procurement cost optimisation is something most CPOs strive for, even if it’s not at the top of their to-do list, but it’s arguably more important than ever that it becomes a top priority. This is because the risk of an economic downturn is rising.
The 2019 Deloitte Global Cheif Procurement Officer Survey found that economic threats are heavy on the mind of CPOs globally. 46% of the respondents cited it as a top risk affecting procurement, and 70% claimed they would be likely to cut costs throughout 2020 to mitigate the risk.
We are certainly living in a precarious time where numerous geopolitical components threaten the global economy. This was also reflected in the survey responses. Factors such as Brexit, the deceleration of China’s economy, the fragility of new Middle Eastern markets and the risk of a ‘trade war’ occurring were all mentioned as areas of concern.
But what do these concerns mean? As they’re extensive global issues, there’s little we can do to eliminate these risks. However, the clear link between geopolitical risk and business proves that businesses need to have a fundamentally proactive approach to cost optimisation as a means of risk reduction.
To find out what more you can be doing to reduce risk, click here.
Is your procurement walled off from the rest of your business?
One of the first things you can, if you haven’t already, is to ensure your procurement is fully integrated into the rest of your company.
It’s all too often the case that procurement is ‘walled off’ as a non-strategic service when this couldn’t be further from the truth. The most successful businesses nurture collaboration between procurement and the rest of the business.
Digital disruption within procurement has seen CPOs investing heavily in technological procurement solutions. Research shows that there are 45% investing in cloud-based computing, 42% in mobile technologies, and 16% in social media.
One partner at Deloitte Canada stated that ‘CPOs have more technology tools at their disposal than ever before — they just need to make sure they use these tools properly and plan for the risks associated with them. Still, the potential of these technologies to cut costs and weather uncertainty is tremendous. My best advice? Go digital.’
Not only does the integration of procurement tools cut costs and reduce risk, but it also moves your procurement away from confusing spreadsheets and documents that no one can track down when they’re needed. Instead, with investment in the right technology, consolidating procurement with the rest of your business becomes something that can be achieved with relative ease.
If you’re thinking about investing in procurement eTools, make sure you read this article first.
Is your procurement team costing you?
Taking a proactive stance to counter external factors seems to be a trend amongst CPOs. This is something that every business should strive for. Proactivity usually always beats a reactive approach.
However, the same can’t really be said for internal operations, which doesn’t make a great deal of sense, considering that it’s something businesses actually have control over.
Research shows that 62% of CPOs think that their team doesn’t have the skills to deliver effective procurement strategies. However, this is combined with the fact that at almost a third of businesses spend less than 1% on training budgets.
With the increasing complexity of today’s procurement processes, staff training and development requires more significant investment. While it may seem counterproductive to cost optimisation, the opposite is true.
If you have a procurement team that lacks the necessary skills and knowledge, you will be losing out much more than having a team that is fully knowledgeable on how to cut costs through a range of processes.
To read more about the benefits of procurement training, click here.
Overall, the key to procurement cost optimisation is remaining proactive in your strategy. To do that successfully, you need to think of what’s happening internally in your business as well as the bigger global economic picture and how it may affect you.
In some cases, the research demonstrates a disparity between the concerns of procurement experts and the actions and investments made by businesses. In that sense, integrating procurment with your wider business operations is a sure way of ensuring everyone is on the same page and recognises the need for investment as a form of cost optimisation itself.
After all, you have to spend money to make money, and without clever investments, your procurement will end up costing you much more.
At Bromley Wood Associates we have considerable experience in helping businesses to assess, manage and prioritise procurement processes so that you can not only manage risk and compliance but, more importantly, optimise the cost of your procurement to help grow your business. If you would like to speak to us more about your procurement and how you can improve it in your business, contact us today.