Tips on Optimizing Procurement

Tips on Optimizing Procurement

Author: | Published: 01 Apr 2015

It’s a long time since the sales team got all the glamour and recognition for being the business heroes, now it’s just as likely that the buyers are out celebrating with the champagne. The impact of procurement to the profitability and sustainability of a business is dramatic.  Consider a distribution business with a revenue turnover of $100m with a cost of sales of $70m and operating costs of $20m, net profit is $10m. A 1% decrease on the cost of sales translates to a whopping 7% increase in net margin.

To affect this kind of change, businesses need not just to look at their ERP system, but also people and processes.

Ensure you have professional buyers who are financially rewarded on long term cost savings, not just short term gains at the expense of future business. Invest as much in their training as you do in sales training.

Partner with suppliers to understand how they could reduce their prices to you:

  • Is your logistics network such that you could collect goods more cheaply than they can deliver?
  • Are your warehousing costs less than theirs, in which case vendor managed inventory on your site might be the answer?
  • Is the product over-specified, could the design or packaging be changed to reduce costs?
  • Would a longer term contract or a change in payment terms help them reduce their unit cost?
  • What about quality or volume rebates?  Returns clauses? Could you help support promotional activity?
  • Can you drive costs out of the supply chain by automating trading utilizing your ERP toolset?

 

Make sure your ERP is configured to provide buyers with the information they need – SYSPRO ERP provides a number of solutions to do just this:

  • Executive Dashboards to highlight spend, unit price and volume information per supplier/per part
  • Return to vendor module to measure performance and quality
  • Landed Cost Tracking to help understand the full cost, not just the material cost
  • Customized reports to show on time deliveries
  • SYSPRO Espresso to give buyers access to information on the road.
  • Purchase requisition software and process to make sure value isn’t eroded through non-professional procurement of capital equipment, services and consumables

Distributors need to bring together procurement and sales; manufacturers need to promote collaboration between procurement, design/engineering and sales. Businesses in general should include buyers in the wider business picture – give them access to, and an understanding of, information relating to customer requirements, logistics, product design, payment terms, manufacturing processes and so on.  Only by working across the business can sustainable value be generated.

In summary

  1. Get the right people on the right commission structures as buyers and invest in them
  2. Work in partnership with suppliers to drive efficiencies, not against them
  3. Utilise your ERP to get you the information you need at your fingertips
  4. Work across the business, not in functional silos

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Comments (2)

  • Ron Crohn Reply

    Well stated. Efficient procurement plays a vital part in profit contribution & inventory management. However, although it may play a small part within the procurement process, Syspro’s lack of efficient handling of Supplier to Customer drop ship PO’s does not contribute to ‘working smarter’.

    April 7, 2015 at 12:42 pm
  • Cathie Hall Reply

    Hi Ron,

    Thanks for taking the time to contribute to the SYSPRO blog. We recognize that the process around drop shipments can be improved and it is something we are currently working on in the product. To automate the existing process you can also use e-signatures, just get in touch if you need any help.

    Thanks

    Cathiw

    April 9, 2015 at 2:16 pm

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