By Iqbal Thokan
Buying and selling a product is easy. Buying it at the right price to provide value to your customer and to create sustainability requires planning. Research, Research, Research.
How often as business owners do we find ourselves with stock that does not sell? Sometimes it is because the market has shifted their focus or other times it’s because we thought it would be a great sell.
As a business management consultant, I have come across many such examples in various different types of businesses in various industries and sizes and there are generally two reasons for this.
- Our focus is on the profit margin.
- We break rule number one of sales, ‘sell what customers want and not what we think they want’.
While there might be several other reasons, these tend to be the most common. So, lets unpack each of these.
Having an understanding of our gross profit margin is important, tracking it as well, but when it starts to become our main focus we tend to lose sight of the shift in market trends and this can cause us to over purchase on products that the market has lost interest in.
As business owners we need to be aware of the needs and wants of our target market and sell to them what they want, rather than what we think they want and this requires us to be attentive to our customers with our ears constantly to the ground receiving valuable relevant information.
While there are instances that we find a product that the market is still unaware of, our excitement can take over our rationality and we tend to over purchase with the hope that it will sell. However, this can be overcome by first testing the market, bringing in enough stock that will allow us to live through the losses if that be the case.
Testing the market can be done in several ways and one of the best ways is to create focus groups of loyal clients who can give us feedback on their interest, likes and dislikes; or once we have identified the target market we can go out and sell in segments again getting feedback on what the customers think.
Once we have identified an interest this sampling can also give us some indication of the market demand which in turn will dictate our purchasing decision. Does this always work, no, however, as we develop our business we tend to use the method to develop a technique that allows us to minimise the losses on our purchases. Stock losses are a natural part of a business, whether it be from over purchasing or pilferage or damages, losses will occur; the trick is to manage that into a number that’s an affordable loss.
As we develop our purchasing technique this can become part of our strategic buying process, which not only helps us to achieve purchasing efficiency but also allows us to stay competitive and of course, reduce costs.
Of course, there are other factors to consider like, economies of scale, minimum quantity orders or volumetric purchases to reduce the purchase price, however, we need to keep in mind that we can also get a better picture of what these factors are when we have a better understanding of the market.
Each of our businesses are unique, thus each of us are required to come up with a strategic buying process that is unique to our business. When we develop our strategic buying process we need to consider the following, the market and its needs, as this helps us to plan for the demand, but also to understand the sales procedures of our suppliers, what are their requirements from us in terms of quantity and consistency of purchasing. Another key factor to consider is the sustainability of suppliers in terms of being able to supply efficiently while at the same time considering quality and availability. The combination of all this information allows us to make the right and informed buying decisions.
From a small-town café to a one of the world’s largest and most loved franchises, KFC can teach us a great lesson in making the right procurement and purchasing decision. In 2018 KFC had to shut down 646 of its 900 stores in the UK due to a bad procurement decision. KFC had decided to change the delivery contractor of their most important product, their chicken. On analysing what went wrong, KFC identified three main reasons, firstly they failed to plan efficiently; secondly, they focused on price and not service and thirdly, they did not have a back up plan. Yes, even the biggest get it wrong and it was estimated that as a group, they lost close to £1 million pounds a day.
While this was a logistics issue it impacted on their operations. Logistics is also a key component of our strategic buying process. Developing a strategic buying process with the right systems is a key function of a business that wishes to stay relevant, survive and thrive.
Iqbal Thokan is an experienced business management consultant and the founder and co-owner of breedingpositivity.com
Strategic sourcing skills play an important role in the cost structure and competitiveness of small and large businesses. These skills involve analyzing high-volume purchases and developing long-term partnerships with a select group of suppliers that are capable of providing quality products and services at low costs. High-volume purchases are the best candidates for strategic sourcing because they are likely to have the greatest impact on lowering cost structures.
Strategic sourcing benefits both buyers and suppliers. It benefits buyers because they can negotiate lower unit prices for high-volume purchases, thus reducing cost of goods sold and maintaining the ability to price their products competitively. It benefits suppliers because they are able to sell a significant portion of their output, which makes planning easier and gives management long-term cash flow visibility. Companies can also use strategic sourcing to procure services. For example, a start-up technology company could outsource its non-core activities, such as payroll processing, which would allow management to focus on core activities, such as product development and marketing.
Strategic sourcing can help build stable supply partnerships. For example, restaurants rely on their suppliers for key ingredients, such as meat and produce, because a disruption in the quality or quantity of these supplies could affect their ability to serve customers. Close relationships can also lead to quality improvements over time because suppliers and customers can work together to measure defect rates and identify the root causes of these defects. Strategic sourcing may lead to supplier consolidation. For example, a retailer can consolidate all of its clothing purchases from one supplier instead of using several suppliers for different brands. This would streamline the procurement process and save costs.
Strategic sourcing can help in risk management. Close supplier relationships can help companies identify and resolve potential problems quickly. For example, if a strategic supplier is having cash flow problems, its main customer may advance some working capital to allow it to continue operations. If the financial problems are severe, a company may have to look for alternative suppliers or consider acquiring the supplier. Risk management may also involve developing alternative sources in case natural disasters or financial problems cause disruptions in the supply chain.
Senior management has to champion strategic sourcing initiatives because it takes time to identify and qualify suppliers. Companies usually have to inspect suppliers’ facilities, and integrate order-management and inventory-management systems. Businesses should establish high-level steering committees for managing and monitoring these initiatives, and at least one member of this committee should have supply management expertise.
Are you a Procurement Professional indulged in the purchasing of goods or services for your organization? If yes, then you might always be wishing to increase the efficiency of your procurement procedure.
It is in the legitimate concern of the organization that the sourcing of commodities is done at lower rates without compromising on the quality.
With the rapidly growing business environment, the demand for purchasing officers is also rising in every business sector. Boosting the efficiency of your procurement will result in cost savings to your organization.
Perhaps, the procurement manager shall apply straightforward attributes and strategies with a specific end goal to procure goods at lower rates.
Here are some of the tips we would recommend if you are looking for the solutions to boost your procurement efficiency.
- Build better relationships with the Suppliers
It takes a lot of time while building and maintaining the relationships with the suppliers. An upbeat and satisfied supplier is itself an asset to the organization.
If you are familiar with the supplier for a long period of time, it will be easy for you to determine their negotiation pattern and supplier behavior. This makes it easy for you as a procurement professional to deal with him.
Although, there is always an option of on-boarding a new Vendor. But, this process is time-consuming and would require you to invest your resources.
Hence, you shall maintain the professionalism while dealing with the vendors, ensure that they are paid on time and often appreciate them for their skills and services.
- Enhance your Network
Enhancing your network will give you an exposure to new ideas. Thus, you shall include and consult the stakeholders from other teams while taking a charge of any project. With their inputs, accomplishing the project will become simpler for you.
Apart from that, the good relationships you will form within the organization, plays a major role in building trust, giving a boost to efficiency and in a quick workflow.
Many Hands Make Light Work.
However, if there is no involvement from the other departments, then there is always an option of growing your network through blogging, LinkedIn, reading blogs and connecting with the people working and leading in your domain.
- Think twice prior releasing the Purchase Requisition
Prior to releasing the Purchase Requisition, you shall confirm that whether there is a need for material/goods or note. You shall have a track record of the inventory available. Only after confirming the need, you shall release the PR.
- Utilize your Analytical and Negotiation Skills
Source: Business Phrases
Managing the Vendors is an art of Procurement Officer. You are required to smoothly communicate with your suppliers regarding the quality, technical specifications, negotiations and delivery of the material to your premises.
Therefore, you shall enhance your problem solving, communication, analytical and negotiation skills in order to achieve maximum benefit for your organization.
In order to become a better procurement manager, you shall also understand and respect the supplier’s point of view. This would help you in Supplier Relationship Management (SRM) and Supplier Performance Management (SPM) over the time frame.
- Keep an Eye on Global Market Trends
Often, there are circumstances when the rates of the material which you are acquiring increases in the market. The reasons for the increase in rates are dependent most of the times on global and sometimes on the local market trends.
Therefore, as a procurement professional, you must always have an eye on the global trends and shall acquire the redundant material when it’s cost in the market is low.
- Regular Training and Development of your Team for increasing their efficiency
In order to gain the maximum output from your team, it is necessary to invest in them. Thus, you shall always train your team with the latest and ongoing innovations in the field. This would result in their knowledge enhancement.
Furthermore, the discussions and meetings at a consistent interim will make them straightforwardly recommend new thoughts and innovation they have come across.
- Standardize and Centralize your Procurement
Standardizing your procurement procedure helps in the better management of the inventory. Apart from that, it will also be helpful in the proper management and utilization of the inventory available in the organization.
Whereas, centralizing the procurement will help in PR Aggregation. Because of the PR Aggregation, the quantity of materials to be acquired will increase. This will open up a scope for better negotiation expanded amount of material.
- Focus on Total Acquisition Cost not on Price Cost
Source: Research Gate
Often it happens that the procurement manager goes for the vendor which is offering the lowest rates. However, it is not the best deal always. There are various other costs involved while procuring the goods.
Some of these costs include Freight Value, Packaging Cost, Import Duty, Payment Terms and other Taxes. Thus, you shall consider all these values while purchasing a product.
- Make a Plan for Primary and Secondary Sourcing
Always procuring from a specific material from a single vendor offers better rates. But, sometimes, it might happen that because of circumstances, the vendor isn’t able to deliver the material to you on time. In such cases, you shall be readily available with the database of the vendors who can supply material to you in urgency.
Another option is distributing the quantity, through the share of the business of a Quotation. Where the maximum quantity will go to the primary source and the remaining quantity will go to the secondary sources.
- Reduce Your Expenses
Reducing the cost of procurement is a priority for all businesses. Below given are some tips we will suggest you for reducing your expenditure.
Get a complete overview of the Vendor’s Negotiation Pattern, Payment Terms and Delivery Period. It helps in the better negotiation and in determining the rating of a Vendor.
Make the process of Vendor On-boarding simpler, automated and quicker.
Establish a product information management (PIM) system for the transparency on the specifications of the products to the vendors.
Keep a track record of all the decisions, delivery details, vendor behavior in a simple database format. Keep in mind, the data quality matters the most!
- Start thinking about up-grading your Procurement with E-Procurement
With the changing technology, now there are various P2P Software available which can monitor your procurement procedure right beginning from PR to Payment. Moreover, you are also having an option to customize these solutions as per your necessity.
With VENDX, you can evaluate the Vendor through Vendor Evaluation, calculate and monitor your spend through Spend Analysis. It also allows the Vendors and Buyers to communicate easily with each other through E-Mails and SMS. If there is any confusion while accessing the platform, you can always drop a message to our support team through live chat available on the platform.
VENDX is our one such solution, which you can customize in the following manners, depending on your requirement.
- VENDX Vendor Portal
- VENDX RFQ to Q+
- VENDX RFQ to Q+ and Technical Bid
- VENDX RFQ to Decision Authorization
- VENDX RFQ to Decision Authorization and Technical Bid
- VENDX Auction+
- VENDX Auction Services
- VENDX PR to PO
- VENDX Order to GRN
- VENDX PR to Payment
- VENDX PO to Payment
- VENDX Payment Register
Why do Procurement Professionals Need to be Efficient?
Procurement professionals are busy. Between juggling multiple projects and communicating across departments, there are many factors that make it necessary to streamline processes to maximize efficiency. Here are seven ways procurement professionals can drive more efficiency among their teams and in their own work.
1. Think Carefully Before Making a Purchase
Procurement reduces costs while obtaining the items a company needs. Yet simply creating a purchase order for every request that comes in doesn’t mean costs are actually being reduced, in fact, often it means the opposite. Continually surveying what is being used and communicating with whomever is using those products keeps the company running faster and smarter.
With contracts being such a huge part of the purchase process, it’s important to ensure that a simple, comprehensive system is in place both to create and review orders. This helps the process move smoothly once a decision is made to purchase, and makes it easy to review contracts and ensure all orders are up-to-date.
2. Build Virtuous Supplier Relationships
One of the main components of being a procurement professional is being surrounded by a group of trustworthy suppliers. Building and maintaining good supplier relationships streamlines the procurement process and eliminates the need to start from scratch on every bid request. Fair, detailed, and straightforward negotiations and RFPs increase efficiency and make suppliers happier.
3. Expand Your Network
It may seem easiest just to take charge of projects and not involve other teams, but working efficiently means involving key stakeholders. Input from other departments widens the perspective on good suppliers, quality, and pushes projects to completion faster. Building close relationships throughout an organization speeds up processes, builds trust, and increases efficiency.
With so many new tools for communication, involving other people is easier than ever before. Both internal and external parties will need access to any contracts that are created for orders, and having a platform in place that allows everyone to communicate in a single source will speed up the process and make sure all the right people are included.
4. Use Your Analytical Skills to Make the Right Decisions
Between project planning, vetting vendors and bids, and negotiating the best deals, being in procurement means having top-notch analytical skills. Having a full perspective on every part of the process keeps projects on track and finances in check. Most modern contract management platforms have extensive analytics that will make gathering metrics and reporting back simple and effective.
5. Sharpen Your Negotiating Skills
Part of developing good relationships is negotiating well. Making a good deal for an organization while keeping suppliers happy can be a fine line to walk, but developing strategies to make both parties happy is vital to becoming efficient.
Negotiations always involve a contract, and in the past, this meant emailing or even mailing documents back and forth. This often muddled conversations and could lead to confusion as different people were involved on different email chains or conversations. Implementing a contract management platform makes negotiation much simpler as everyone is now able to redline, edit, and comment in one place.
6. Think Globally
Today’s economy is global. Often the best deals in the business are in an unexpected location. Building relationships with global partners increases flexibility and options for an organization. Global supply chains often provide more options and better prices than limiting the search to close locations.
An important part of thinking globally is timing. An organization needs supplies as soon as possible, and suppliers want to get a deal signed as soon as possible. If teams are emailing documents back and forth and not all parties have immediate access, the process is significantly slowed down. A contract lifecycle management platform ensures all the necessary parties have access as soon as the contract is created so that signatures happen faster.
7. Move Forward with Technology
Digitizing processes is one of the fastest ways to increase efficiency and be successful. Moving contracts and documents to the Cloud is essential for speeding up processes and becoming a forward-thinking company. Having an automated contract lifecycle management platform in place will help contract creation, real-time negotiations, faster signatures, and automated reminders to increase compliance.
The skills are there and the tools are all within reach. Following these steps will help maximize efficiency and keep procurement departments working faster and smarter.
The cost of purchasing, and doing business, is on a steady rise. Businesses have started to regard procurement management as their top priority since it takes up a large share their overall spend. Considering most organizations still hold on to their manual procurement practices, a complete revamp of their procurement functions is crucial to keep pace with business demands.
In order to get the fundamentals right, organizations need to implement an effective procure-to-pay process and embrace the right technology solutions. However, simply revamping the process and implementing a top technology product won’t make the procurement function best-in-class.
So, what does it take?
The answer might vary from one organization to another, but there are some procurement best practices that several leading companies have adopted over time. Here’s an outline of five procurement best practices that, when implemented properly, can significantly lower costs, improve process efficiency, and have a positive impact on the cost-income ratio.
1. Cloud-based procurement tools
Taking procurement digital is a critical step in making procurement activities future-ready. Digital procurement solutions help teams reduce the repetitive operational parts of procurement, freeing up team members to focus on strategic roles.
As technology continues to become an integral part of our everyday activities, a complete digital transformation for procurement activities is inevitable. High-performing organizations are leading the pack on digital procurement practices.
Here’s what competent digital procurement solutions like Kissflow Procurement CLoud can handle:
- Supplier Management – Onboard, maintain, and manage vendors in an easy-to-use, efficient platform.
- Invoice Approval – Approve your invoices on the go and perform quick three-way matching.
- Purchase Requests – Fluid forms help you capture, approve, and keep track of purchase requests.
- Purchase Orders – Issue POs and generate orders automatically from approved purchase requests.
- Analytics – Generate actionable, data-driven insights from your purchasing-related data.
- Integrations – Connect your procurement cloud with other essential finance software systems.
2. Spend Transparency
Making procurement functions transparent is the baseline to unlock potential savings and make headway into achieving operational excellence. Spend transparency is the key to ensuring accountability and minimizing opportunities for fraud in the procurement process.
Steps to ensure spend transparency in the procurement process:
- Define and implement procurement policies properly
- Monitor and document every step of the procurement process
- Identify and manage a list of approved supplier lists
- Establish fool-proof procurement contracts
- Conduct frequent audits
By harnessing the power of data analytics and automation, organizations can eliminate dark purchasing and maverick spend. Procurement technology offers better visibility into the procure-to-pay cycle.
3. Supplier engagement
Every organization has a number of suppliers who deliver essential products, provide specialty services, perform regular maintenance, and complete one-time urgent repairs. Although calling a specific vendor to order a merchandise or repair a faulty machine sounds simple, the task of qualifying and managing a supplier is anything but.
The process of identifying a potential supplier, onboarding the vendor, scheduling the service, obtaining the invoice, and paying the vendor is overwhelming. If managed manually, just a simple process of submitting one vendor invoice can consume several hours.
Supplier management tools offer a set of unique features to improve the source-to-contract process and enhance supplier engagement. eProcurement tools offer comprehensive vendor dashboards, pre-made contract templates, digital procurement processes, and extensive integration with accounting management systems.
An organization can improve supplier engagement by:
- Generating win-win situations and trust
- Treating suppliers as strategic partners
- Monitoring supplier performance with specific KPIs
- Enabling collaboration and communication with vendors
4. Optimized inventory
As profit margins shrink in certain industries, organizations are constantly looking for ways to control their spend and improve the bottom line. Their primary focus is the procurement process. So, procurement teams need to constantly review their inventory and strive to ensure they stay optimal.
Best-in-class organizations pay close attention to their inventory since the ‘real cost’ of holding inventory is much higher than the cost of ordering items. The rule of thumb for holding costs is between 20 and 30 percent. And it isn’t just consumable products that go bad over a period of time–everything from consumer electronics to clothing are subject to risks.
The major reason for out-of-balance inventories is poor planning and forecasting. Procurement leaders around the world are slowly recognizing the power of better data-driven insights. Nearly 50% of respondents in 2018 Global CPO survey confided that they are leveraging intelligent and advanced insights for cost and inventory optimization.
Here are a few questions organizations need to check whether their inventory is optimized:
- What are the ratio of operating inventory in terms of safety, replenishment, and excess stock?
- Does the procurement team over- or under-purchase any products/services?
- What is the optimal frequency of purchases?
- Are all purchase requisitions and orders in sync with inventory levels?
5. Contract Management
Although procurement teams try to negotiate potential savings in the sourcing stage, they never completely unlock the value. While the reasons vary, the most common problem is a disorganized contract management process.
A recent report on contract management indicates that nearly 81 percent of organizations don’t use any Contract Lifecycle Management (CLM) software. As a result, they face a number of pain points including lack of consistency across contracts (53 percent), cumbersome processing (45 percent), and supply chain continuity problems (36 percent).
Organizations can stay clear of these procurement pitfalls by moving their contract management process to the cloud. When contracts are created, stored, and maintained in a centralized data repository, organizations can leverage their spend optimally, reduce costs, and mitigate risk.
Contract management automation will provide organizations with:
- Central repository:
Store all documents (riders, amendments, etc.) in a cloud database that is accessible from anywhere
- Configurable interface:
A highly scalable and customizable interface that could be tailored to fit around business requirements
- Automated notifications:
Trigger automated alerts to highlight contract milestones, renewals, and chances for renegotiation
- Performance monitoring:
Track delivery time, product quality, pricing fluctuations, and adherence to purchasing terms/policies
- Level up your procurement game with Kissflow
Some of these procurement best practices may seem simple and familiar, while others are fairly new. However, by implementing them properly, organizations can unlock procurement excellence.
A cloud-based digital procurement tool is the first step towards building a sustainable procurement strategy. A comprehensive procure-to-pay tool like Kissflow can takecare of procurement processes, making them streamlined and efficient.
With Kissflow, organizations around the world are shortening procurement cycles, accelerating purchase approvals, reducing expenses, making informed decisions with procurement analytics data, keeping up with policy compliance consistently, and more. Try the Kissflow Procurement Cloud for yourself today, and see how it can help you beat the competition and up your procurement game significantly.