Are you a finance controller of a growing company, wondering if it’s finally the time to get a procurement team?
Then you’re on the right place.
In this blog, we’re going to cover signs you should pay attention to- and finally decide it’s time to scale with a procurement team.
In our experience, companies with no procurement teams suffer challenges like
-cost overruns
-inability to read and use data analytics correctly
-and even slow and inefficienct processes
By the end of this resource, you’ll understand the answers to the following questions:
1. What is a procurement department?
2. What are the benefits of having a procurement department?
3. What’s the right way to set up a procurement department?
4. What are some of the procurement roles inside a procurement department?
While you’re at it, you might want to start thinking about having a purchasing policy to help you standardize the purchasing process for your employees. We covered this topic in creating a purchasing policy.
What Is A Procurement Department?
A procurement department is the backbone of your organization. They are responsible for acquiring your business’s goods and services for a smooth operation.
To keep it simple, consider them your company’s personal & strategic shoppers. They find you the best deal for everything you need, from paper clips to machines.
They ensure your company gets what it needs at the right price and quality.
Some of the other functions of a procurement department include:
- Sourcing and researching the best vendors/suppliers for goods and services
- Negotiating contracts so your company gets the best possible terms for price discounts, delivery schedules, and payment terms
- Managing of purchase orders
- Monitoring deliveries and invoices to ensure items arrive on time and match purchase order specifications
- Building and maintaining strong relationships with your support
- Implementing and developing procurement policies for your company
- Analyzing spending data to see areas where costs can be reduced
What Is The Importance Of A Procurement Department In An Organization?
You may be asking this question:
Why do you need a procurement team?
The short answer is it depends upon the nature of the product or services you are performing.
If you are manufacturing a product which needs raw materials, then chances are that you already have the function from day one.
That function might be managed by the person or department responsible for inventory management. It could also be managed by someone in the production department.
However, if your company offer services, let’ say you are a software provider then it is most likely that the purchasing activity is performed within individual functions.
For example, the IT department is responsible for purchasing hardware and software.
A key function of the procurement department is to centralize the purchasing operations for efficiency and compliance.
So let’s look at some key signals that indicate that it is time for you to hire a procurement professional to start building the dream procurement team.
Let’s look at some of the important functions of the procurement department.
- Sourcing of products & services: Your procurement department identifies, evaluates, and selects the best suppliers where your company can get the best goods and services. In addition, they make sure you get it in the best possible terms!
- Compliance: The procurement department ensures that your processes adhere to internal policies, industry regulations, and legal standards.
- Negotiation with suppliers: Your procurement department engages in discussions with your suppliers to secure favorable terms, prices, and conditions.
- Manage contracts: Your procurement department is responsible for drafting, reviewing, and managing contracts with your suppliers to formalize agreements. They also do this to establish rights and responsibilities for both parties (your company and your suppliers)
- Monitor supplier performance: Your procurement department tracks and evaluates the performance of your suppliers to ensure they meet quality, delivery, and service requirements.
6 Signs Your Company Needs A Procurement Department
Sign #1: Your Company Is In Growth Mode
A common sign that you need a procurement team is that your company is experiencing year on year growth in revenue.
If your company is in growth mode and experiencing double-digit growth YOY, you are also spending more money to generate revenue.
Now the above statement only makes sense when you have significant revenue, to begin with.
What is a significant revenue?
If you are just starting, experiencing 100% growth year on year is not unrealistic. Let’s say you are a startup and your annual revenue is $100,000 and you doubled it next year, of course, we are not saying you hire a specialized procurement function for such a small spend.
In our humble opinion, The magic number is $15 M and above.
As per Bain’s research, on an average in any industry, 43% of the spend can be managed by procurement.
So far $15M, annual revenue 43% is $6.45M.
That is not an insignificant amount of purchase every year.
A procurement department can help drive the cost down and increasing purchasing efficiency.
Sign #2: Increasing Employees And Locations
Along with revenue, the other sign is the number of locations and number of revenue.
If you are in a business where you need physical locations to expand, then it makes sense to have a centralized procurement department to manage that.
Also once you cross 100 employees, your employee-related expenses also increase. Once you cross this threshold, it would be helpful to review your employee-related expenses and negotiate better deals on such expenses.
Sign #3: Expenses Are Rising
If your expenses are rising then it might be time to look at the review of spending and finding opportunities to reduce cost.
The common practice for finance teams to provide cost reduction targets for every department without looking at the impact of such reductions.
The issue with this approach is you might see a short-term cost reduction but these costs come back as your revenue grows.
By looking at the expenses strategically, you can identify opportunities for better cost allocation. That would drive increased EBITDA margins and improved cash flow for your company.
And it is not just the procurement or the finance team responsibility to review those expenses. You should try to build a cost-conscious culture so that all budget owners are continuously reviewing the expenses and ensuring that it is the best use of the available capital.
Sign #4: You Have Strong Cost Reduction Goals
Every company has cost reduction goals, some have more formal goals and some have informal goals.
Having a procurement team can help in having centralized responsibility and accountability for driving the cost reduction efforts.
By conducting a spend analysis exercise, your procurement team should be able to identify opportunities for cost reduction.
If you are not familiar with spend analysis, here is a quick brief
Spend analysis is the process of collecting spend data, cleansing, categorizing the data and analyzing it to understand spending trends and identifying saving opportunities.
You can read more about how to conduct a spend analysis at your company.
By analyzing the spend patterns, the procurement team can identify cost reduction opportunities in the following areas:
Consolidation Of Vendors
For example, you purchase office supplies from different vendors and can get a better rate by consolidating your purchases.
Low-Cost Sourcing Strategy
Reduce cost by adopting a low-cost country sourcing strategy.
Standardizing Product Specifications Across Different Locations
If you don’t have a centralized procurement function, you would be surprised to see that different locations purchase the same functional product or service at a very different price point.
Controlling Spending Behaviour
If wasteful spending is happening in your company, spending analysis can help you identify that.
Increase Cash Flow By Managing Payment Terms
Your procurement team can easily identify opportunities for increasing cash flow by extending the payment terms. Now the realization of that opportunity might depend on the creditworthiness of your company.
Extend Cash Flow by Paying With Purchasing Cards
The trick is to use the card as another payment vehicle (ACH, Check). If you can convince your vendors to keep the same payment terms but take payment through purchasing cards, you just extended the terms by 30 days!
Sign #5: The Procurement Team Can Deliver ROI
Most of the support functions are cost centers and not profit centers. You might consider procurement to be a cost center similar to other functions like payroll, HR etc. These functions are critical for running operations but they don’t increase revenue.
We agree that procurement doesn’t generate revenue but it can help you do something better than that.
Increase EBITDA without investing capital to generate revenue.
You can calculate the impact of procurement cost savings as follows
Let’s look at a hypothetical income statement for a software company with an operating margin of 16.67%. Assume that you don’t have a procurement department.
Now let’s look at the same income statement but let’s assume that procurement is able to reduce 10% across the board for COGS, Sales & Marketing and General administration.
Total savings added = COGS ($50,000) + Sales and Marketing ($50,000) + General and Administration ($50,000) = $150,000
The same income statement now looks like this
The operating margin jumped from 16.67% to 21.67% which is approx 30% increase without increasing revenue.
The question you should ask is – is it worth to gain an increase in EBITDA by adding the cost of the procurement department?
Sign #6: You Are Losing Money Due To Unplanned Contract Renewals
Another sign that you need a procurement department is if you are losing money on unwanted contract renewals.
As we mentioned earlier, even though you don’t have the procurement department, you are still purchasing product or services.
Let’s take a case where a contract is negotiated by the IT manager for certain software and let’s assume the annual renewal cost is $100,000.
If you are not tracking your renewals at a central place, chances are that contract is with an individual. To make the matter worst, sometimes the person has already left the organization and you don’t even have a copy of the contract.
Now let’s assume you don’t use that software anymore, but since nobody is tracking the renewals, you only come to know about the renewal when the vendor sends you the invoice for the annual subscription renewal.
Every contract has a clause for advance notice for either renewing or terminating the service and in most case, it is 30 – 60 days.
Chances are that by the time you are seeing the invoice, it is already too late to cancel the subscription and you are obligated to pay for the service which you don’t even use anymore.
This is not an exaggeration of truth as many of you would be able to relate to such occurrences.
Having procurement centrally manage procurement contracts ensures that you are tracking the renewals and you have sufficient time to send termination or renewal notices based on the needs of your business.
5 Procurement Department Roles
Chief Of Procurement
As the overall leader, the Chief of Procurement guides the department’s strategy, reports directly to the C-suite, drives innovation, and brings expertise in procurement trends.
Director Of Procurement
The Director of Procurement oversees daily operations, manages staff, builds relationships with stakeholders, and ensures cost-effectiveness through budget management.
Procurement Manager
Serving as a team leader, the Procurement Manager focuses on specific categories, conducts risk assessments, and monitors supplier performance for continuous improvement.
Procurement Specialist
Acting as the operational backbone, a Procurement Specialist executes sourcing tasks, conducts vendor research, performs cost analysis, and manages supplier contracts.
Contract Specialist
With legal expertise, the Contract Specialist ensures contract accuracy and compliance, supports negotiations, and manages contract amendments, disputes, and terminations.
7 Benefits Of Having A Procurement Team
Centralized purchasing teams are not just for large companies but a company of any size can benefit from having a centralized purchasing function.
Let’s look at some of them.
Benefit #1: Helps You Streamline And Simplify Your Purchasing Process
Having a purchasing team can help you streamline the purchasing process for your company.
Once you have ownership of the purchasing process, the process owner can then start looking at tracking the performance of the process.
The process owner can also look at areas where improvements can be made.
There is a direct relationship between your purchasing process and adoption of your purchasing policy. The simpler it is, the better it is for adoption.
What Do We Mean By Simplifying The Purchasing Process?
Let’s do a simple exercise – Ask 5- 10 employees across different departments to explain what is the purchasing process.
If the answer is same across the board, then you at least have a common process.
However, you shouldn’t be surprised if the answer is – I don’t know or every person has a very different understanding of the purchasing process.
Why Should You Streamline Your Purchasing Process?
It reduces ambiguity on how to purchase a particular item or service. The more informed the employees, the better the chances that they would purchase the products from your preferred vendors.
To give an example – should you purchase office supplies from Amazon.com or should you use contracted prices from Staples.com.
Simplify Your Employee Experience
Many companies complain that their employees don’t follow their purchasing policy, assuming you have one.
When it comes to the purchasing process, you need to have empathy for your end users experience. This is not the only thing they do in their day so simpler the experience the better it is.
Having clarity on how to purchase product or services can greatly simplify the experience for your employees. Having a purchasing system definitely simplify the experience for your employees.
The acid test is if they don’t have to look up a policy manual to understand the purchasing process, then you are on the right track.
Benefit #2: Helps You Reduce Cost
Reducing cost is critical for any business so that you can free up the capital and invest it in revenue growth.
Having a centralized procurement team can help you reduce cost. Let’s look at some ways on how procurement can help with cost reduction.
Negotiating Better Rates
By reviewing the purchasing data, also called as Spend analysis, the purchasing team can combine the volume leverage to discount better terms.
For commodity items, it is possible to leverage the volume to gain discounts.
But what if you don’t purchase a lot of certain commodities then you might have limited leverage.
For example – if you a small to a mid-market company, you are probably spending $50,000 to $100,000 annually on office supplies. That might not be enough to get a good price from companies like Staples or Office Depot.
So, what should you do in this case?
You can leverage the power of cooperating purchasing whereby you can combine your purchasing power with other companies to get a better rate. This concept is not new and is widely used in healthcare companies to reduce cost.
If you already working through such an arrangement, then that is great. If not, ProcureDesk can help with that. Our marketplace offers the same benefits of cooperating purchasing and we leverage the volume for our customers to get better pricing on products like MRO, office supplies and IT accessories.
Now let’s look at how procurement helps reduce cost in case of non-commodity items. For example, facility cleaning services.
Given that the scope of services is different for different customers, there might not be a standard price which can be offered.
So your procurement team can ask for proposals from different companies and that can help drive the cost down. Of course, your team should know what is the average cost paid for such services so that they can effectively negotiate the price down.
Companies who don’t have a procurement department often think that procurement can only help with material items.
It is not uncommon to hear – “We are not buying widgets here”. An experienced procurement team should be able to handle all your categories and put it through a strategic sourcing process.
Benefit #3: Helps You Avoid Savings Leakage
Once you have negotiated the savings, you need to have a control mechanism in place to ensure that your employees are purchasing from the negotiated that contract.
Just negotiating a great price doesn’t mean that you are going to realize the savings.
There are a couple of ways the purchasing team can help avoid savings leakage
• By ensuring that every purchase order is reviewed to ensure that the items are purchased from the right vendor at the correct price. Of course, this process is highly inefficient as the team has to review each and every order to ensure that savings are realized.
• The other option is to build these prices in some form of a catalog or item master so that users can select predefined items at predefined pricing schedule.
• The third alternative would be to use an intelligent system which can guide the users to the right suppliers based on the information provided by the user. Such a system can automatically take care of ensuring compliance with negotiated contracts.
Benefit #4: Increases EBITDA
Increasing revenue is much harder than reducing cost. Your procurement team, of course, reduce cost which increases cash flow. But if the team is heavily focused on operating expenses or Opex spend, then that can help you dive significant changes to the EBITDA.
See how procurement cost savings can help you drive EBITDA growth.
Quantification Of Cost Savings
So how do you quantify the impact of procurement cost savings?
The above research by CAPS and Bain provides interesting statistics based on your industry.
As per this Bain and CAPS research, on average companies spend 43% of their revenue with external vendors.
So for example, if you are a $100M annual revenue company, then you are spending $43M with external vendors.
In certain industries, the number is pretty high. For example, in semiconductor, 63% of revenue is spent with external vendors.
Computer hardware and software companies spend around 42% of their revenue with external vendors.
That is the spend which your procurement team can control and impact.
Now your next obvious question is what is the ROI of the procurement team and how do you measure it.
The obvious output of the procurement team is the cost savings delivered by the team.
As per Bain, the average savings delivered by procurement teams is in the range of 8-12% across different spend categories.
Direct materials have the lowest potential, in the range of 1-2%.
But categories like HR services, travel and facilities can go as high as 15%.
We think this is a good start to estimate the value or cost savings procurement can team can deliver but then you need to adjust these numbers based on the following factors
• If you don’t have a procurement department today, it will take some time for them to get to up to speed and start contributing results.
• It takes time to understand and increase stakeholder management. So we have to discount the time it takes from the initial estimate of cost savings.
• Even if your company has a high procurement maturity, the team will not be able to address the entire spend in one year.
So with that in mind, let’s look at a more realistic model.
Annual Revenue: $100M
Spend with external vendors: $42 M ( Using the industry average)
Spend which can be addressed in a year: 40%
We are discounting this to factor in procurement maturity as well as the fact that certain spend might not be addressable in a given year.
So that brings us to $16.8M [$42 * 40%]
The average cost savings is 8-10%.
That means the team has the potential to deliver $1.3 M [$16.8 * 8%] to ~$1.7M [$16.8 * 10%] in savings every year.
Assume you have a team of 3 people and at an average cost of $100,000 loaded cost.
So you have $300,000 in annual cost and return of $1.3M – $1.7 M
That is a return of 400% +
Benefit #5: Avoids Procurement Fraud
Fraud is prevalent in all companies, and procurement can’t help with each one of them. However, your procurement team can help you increase compliance with purchasing policies and prevent procurement fraud
How Big Is Procurement Fraud?
We looked at a recent survey conducted by PWC and across three industries, there is a varying level of procurement fraud.
For example in the technology industry – 23% reported procurement fraud as an issue.
However, in professional services, the number is close to 26% and in Industrial products, the number is as high as 28.
The problem with fraud is that you might feel there is no fraud until the time fraud is detected. To avoid a scenario like this, companies must invest in controls to ensure that policies are followed and fraud is controlled.
Conflict Of Interest
Whether you call a conflict of interest fraud or not it is up to how your corporate spend policy is defined. Here is a classic example of conflict of interest.
Bob is responsible for purchasing a product for the company, let’s say raw materials. He purchases the product from a company where his wife is part owner. That means he is directly benefiting from the transaction.
Personal Gains From The Transaction
Personal gains are different from conflict of interest. Personal gains could be int he form of bribery or some other benefit which is provided to the buyer to influence the purchasing decision.
For example, the buyer is taking a bribe to award the business in favor of the the vendor. In some countries, the personal gains might be in the form of personal trips especially to Vegas or expensive watches.
Making Payments To Personal Accounts
This kind of fraud can happen if the person who is making the payments to the vendors also have access to set up new vendors.
If that is the case, they can set them up themselves as a vendor and keep on issuing fraudulent payments to themselves without being detected.
This kind of fraud generally goes undetected becuase the amounts are generally small and the payments are done over a period of few years
How Procurement Helps Prevent Procurement Fraud
1. Segregation of duties
By only having procurement issue purchase orders limits the potential of fraud.
First of all define a corporate purchasing policy, so that everyone has a clear guideline about how your company purchase products and how the spend needs to be authorized before the purchase order can be issued.
Second, procurement needs to review the orders going out of the door to ensure that are with the preferred vendors so that you can control rogue or maverick spend.
2. Define an ethics policy for procurement
Yes, the person who is responsible for watching also needs to be policed. You need have a ethics policy for procurement so that you can define what is ethical purchasing,
This doesn’t need to a separate policy but could easily be a part of your purchasing policy.
The idea here is to define guidelines for purchasing and clear directions on what is acceptable behavior, for example – accepting gifts from vendors or going out for lunch or dinner with the vendor.
You should clearly define what people can or can’t do during an RFP process.
Thought it is important to have guidelines for your employees, it is even more critical that you have stricter guidelines for your purchasing team.
Benefit #6: Helps You Avoid Unnecessary Vendor Escalations
Vendor escalations are part of everyday purchasing activities, especially for material purchases.
Vendor escalations can happen because of the following
- The vendor has not delivered the products on time.
- You need products urgently so you need the vendor to ship the product ASAP.
Let’s look at the root cause of these problems and see how a purchasing team can do to avoid it.
In the first case, the common reason we hear from vendors is that they never received the order or the order was delivered to someone email’s box and they are no more with the company.
This can be easily resolved by ensuring that you have a vendor acknowledgment process whereby it is mandatory for vendors to acknowledge that they have received the order. They can deliver what is requested and by the requested date.
A purchasing system can streamline this process and ensure the deliverability of the orders.
The purchasing team can review the vendor contacts on a regular basis and keep the vendor contacts current so that the order is delivered to the correct person.
The second case where escalations are required because you need the product sooner can be avoided by having clearly defined lead times with the vendors.
And then finding a way to communicate that to the stakeholders. The idea is to have the orders automatically default the dates based on the lead times.
The procurement or purchasing team should work with the stakeholder to understand why an escalation is required in first place.
And what could have been done to avoid it?
After doing some investigation, you might find that
- Your stakeholders don’t know about the lead times you have with the vendors.
- Your internal processes need to change so that you can give ample lead time to your suppliers.
Vendor escalations generally indicate poor supplier performance or inefficient purchasing processes.
Whatever the case, the purchasing team should be able to look at the root cause and work on fixing it.
Benefit #7: Helps You Reduce Purchase Order Cost
Before the purchase order can be sent to the vendor, it needs to be entered in your systems, approved by stakeholders etc.
And on top of it, you have to sometimes to vendor escalations to ensure timely delivery.
All this is the cost of the purchase order.
Do you know how much does it cost for you to issue a purchase order to the supplier?
There are multiple benchmarks out there, for example
As per APQC (American Productivity & Quality Center)– Cost per purchase order varies from $35.88 to whopping $506.52
As per CAPS research, the cost varies from $53 to $ 741
All this is the cost of the purchasing process, from the time the requisition is created until the vendor is issued the purchase order.
If you are interested in understanding what is costing your company to issue a purchase order, you can conduct your own cost analysis exercise. We covered this in depth in Purchase order cost benchmarks
If you don’t have time to read that, the following is a quick analysis of different activities involved in the purchasing process and the average time it can take. Of Course, this is an example.
If you have a purchasing team, they can look at why it takes so long to create a purchase order and what can be done to reduce the cost.
In the above example, the cost per PO is $62.7, So assuming that the team can reduce the cost by 50% and for the annual count of 10,000 PO’s – you can save around $313,500 annually.
We highly recommend you to look at the cost of a purchase order and what can the team do to reduce the cost.
There are two main ways the purchasing team can reduce the cost of the purchasing process.
1. Automate the purchasing processing so that the end to end process is completely automated. You can enable self-service and catalogs so that users can easily find what they are looking for. The system can drive the compliance to your purchasing policies and you can focus your time on negotiating better pricing with your vendors.
2. The second way is to look at your purchasing process and see if it can be simplified. For example, what step in the process takes the most time and what can be done to reduce the time.
Both these approaches go hand in hand to support your cost reduction initiatives.
For example, you realize that approvals take a long time. So you can look at how many people are approving the requisition.
Let’s say each requisition goes through at least three approvals.
Do you really need three approval levels?
Once you have identified the appropriate approval levels, you can further reduce the time by automating and enabling approvals through a mobile app.
The above is a good example of how technology combined with process reengineering can help you reduce purchasing cost.
Does Your Procurement Team Need A Procurement Software?
Getting procurement software will depend upon your company’s needs.
But suppose you’re in the middle of scaling and realize that manual processes are becoming a headache. In that case, you need to consider getting procurement software for your business.
Our tool ProcureDesk aims to help small to midsize companies automate the accounts payable process to reduce the time spent on manual processes.
Our top features include the following:
Create Purchase Requests
To make your purchasing process effective, you need to make your requisition process easy.
Using ProcureDesk, employees in your company can easily create purchase requests with a few clicks without entering too much information. When the system recognizes the user, information is automatically set up for departments, classes, charts of accounts, projects, class codes, etc.
Here is an example of how user defaults work:
Vendor Catalogs
Typing long product descriptions is such a hassle. That’s why it pays to use software that makes this process easy.
ProcureDesk offers vendor catalogs that make things easier for you. Your employees can choose what they need to buy with just a click.
Let’s say you purchase office supplies from Amazon.com.
With the click of a button, an employee can open up Amazon.com, pick what she needs, and then send the data back to the requisition. This experience is called vendor punch-out catalogs.
Here is a sample of the punch-out catalog:
And this is how the data gets moved to the shopping cart.
Sometimes, you only need a simple list of items you can purchase from a vendor.
You can build a simple item list with some basic information enabling employees with similar purchasing experience as the vendor punch-outs.
Here is how you can curate your catalog in purchasing software:
Purchase Approvals
ProcureDesk automatically assigns purchase approvals. It also allows you to configure the purchase approvals based on the amount, department, location, and even budget owners.
And the best part is- you can even configure your custom approval workflow.
Here’s how the system does it:
1. The system checks the requisition against the purchase approval workflow
2. The system identifies the required approvers for the purchase.
Here is an example of how the system identifies the purchase approvals:
In this case, the requester is John, and Mark is the approver who will review the approval request.
All the employee needs to do is submit the request for approval.
Once the request is submitted, the system notifies the approver of a pending request.
The approver can approve from the email without logging into the system or using the ProcureDesk mobile app for approvals.
The requester can track the status of the purchase requisitions from the purchase request dashboard.
For example – you can see what requests are pending approval or if the buyer has already issued the order for a purchase request.
Automated PO Creation
There’s no need to worry about converting your purchase requisitions to purchase orders. You can use ProcureDesk’s PO creation to save you time.
You can identify what suppliers accept purchase orders, and the system can handle the rest.
Here is an example of a purchase order that ProcureDesk automatically generates.
Aside from that, you can customize the purchase order template to include additional fields.
Cost Control Dashboard
ProcureDesk offers a cost control dashboard that makes it easy to view your cash flow in one place. Our spend management dashboard allows you to see all the data you need.
For example:
You can see what you are purchasing, from whom, and who is purchasing within your company.
Other things you can track through our cost control dashboard are:
- monthly spending trends
- payment terms across vendors
- open order report
3-Way Matching
The procureDesk system can help match invoices with relevant documents.
Suppose the system finds a matching purchase order. In that case, it automatically matches the invoice lines with the purchase order lines and performs the 3-way match.
The system would check the invoice against the purchase order and receipt for the material purchase.
For service items, the system checks the invoice against the purchase order. It then routes the invoice for review by the stakeholder.
You don’t need to follow up with employees for approval manually. The system automatically sends reminders to respective team members.
Invoice Approval Workflow
ProcureDesk’s invoice approval workflow engine allows you to skip worrying about routing invoices for review and approval. With a customized invoice approval workflow feature, ProcureDesk helps you create your custom workflow and even automate the approval process.
Here is an example of how easily you can set up the approval workflow for invoices:
FAQs
What Are The Components Of Procurement?
Procurement operates on a three-pronged foundation: people, process, and paperwork. Let’s dive deeper into each:
1. People:
- The experts: Procurement teams are skilled in negotiation, sourcing, and contract management. They understand markets, build strong supplier relationships, and find the best deals.
- The collaborators: They work closely with internal departments to identify needs and specifications, ensuring purchases align with company goals.
- The decision-makers: They evaluate proposals, weigh risks and benefits, and ultimately choose the right suppliers and terms for the organization.
2. Process:
- The roadmap: Clear, defined processes guide every procurement step, from identifying needs to finalizing payments. This ensures efficiency, transparency, and compliance.
- The technology enabler: Automation tools and digital platforms streamline tasks, enhance data analysis, and improve communication.
- The risk mitigator: Proactive risk management procedures minimize challenges, identify potential issues early, and ensure smooth execution.
3. Paperwork:
- The trailblazer: Contracts, purchase orders, and invoices document every step, protecting the organization and providing a clear audit trail.
- The data source: Procurement data empowers analysis, cost control, and strategic decision-making. Timely, accurate paperwork is crucial for effective reporting and performance monitoring.
The Bottomline
Overall, having a procurement team doesn’t only drive cost savings for your company but can also help you increase your EBITDA (Earnings before interest, tax, depreciation, and amortization)
If you are an entrepreneur looking to reduce cost, you should start by analyzing your cost; that is where detailed Spend visibility can help. Procurement teams can use that data to find opportunities to drive down cost.
We hope the above examples have helped you quantify the procurement value add.
