Procurement Savings – Ways To Increase Your Profits
Procurement savings can be made in a number of areas within a Purchasing
Department. The aim of procurement savings are to drive down
procurement costs, improve supplier terms and decrease product prices.
Ways to do this include:
- Reviewing supplier’s terms and discounts.
that a Master Agreement exists for all the suppliers. Discuss with
your suppliers as to when you may make procurement savings by altering
your purchasing patterns. It may be that by purchasing slightly more
products your automatically receive a higher discount.
- Consolidating suppliers and deliveries
Make savings in delivery charges and the costs of accepting those
deliveries. Processing the purchasing documentation and payment
processing charges will also fall.
- Consolidating purchasing requests and intervals
This cuts down on delivery costs and purchasing documentation.
Reviewing purchasing requirements
This ensures that only strictly necessary purchases are made. It will
cut down on excess costs and storage costs and is a good way to ensure
that a company makes procurement savings.
Purchasing from agreed catalogues
Ensure that only
one brand or type of a product is purchased. Duplication can be
expensive and is unnecessary. Higher orders from one supplier lead to
- Reviewing stock levels
Stock left in warehouses is “dead money”. It costs money to store, can deteriorate and become obsolete.
- Reviewing the specification of purchased products.
Is it possible to buy a lower spec that will do the same job?
- Review replacement strategies
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.
- Ensuring that the correct management controls are in place
Adhered to them for ad hoc purchases in particular. Are the correct
people ordering the right products for the job? This should cut down on
excess or incorrect purchasing.
- Train staffon cost effective purchasing and encourage them to save money whenever possible.
- Computerizing the purchasing process.
This costs money to start with, but by speeding up and simplifying purchasing, savings should be made.
- Linking the purchasing systemto the inventory and accounting systems. This not only saves in staffing costs but also cuts down on mistakes.
- Using e technology to
be quicker and cut down on communication costs. This also enables
purchasers to access supplier catalogues and enhances the choice of
products that may lead to purchase savings.
- Using tendering and procurement auctions to drive down costs and improve terms.
- Centralize disparate purchasing functionalities, which allows for savings in staff, processes and technology.
- Centralize warehousing which can give great real estate and staff savings.
Good management of the Purchasing
Department is crucial to a profitable company and procurement savings
can only be beneficial. There are a considerable number of ways to make
procurement savings and all staff and managers should be aware of them
and trained in good purchasing.
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