Every business needs to reduce procurement costs, but many companies fail to do so because they don’t know where to start and how procurement consulting by AML Advisory could be beneficial. It’s not easy to know how much money a company is wasting on procurement if no one is tracking it. To help you get started with your own procurement cost reduction initiative, I have put together 8 creative ways that you can reduce procurement costs in your company or organization.
1. Reduce the number of suppliers.
The more suppliers a company has to work with, the higher their administrative costs will be. This can include everything from coordinating shipments and managing invoices to supplier onboarding and training. Additionally, having too many suppliers can also make it difficult for an organization to gain volume discounts or negotiate better pricing.
2. Reduce supplier errors and invoice discrepancies.
Supplier errors and invoice discrepancies can really add up over time if they are not reduced or eliminated altogether. You should have a formal process for tracking and reporting such errors in order to resolve them as quickly as possible. If you are finding that you are dealing with too many supplier errors or invoice discrepancies, then it may be time to conduct a supplier audit so you can improve your processes going forward.
3. Consider alternative suppliers
If you’re only considering direct suppliers and not taking into account suppliers who can meet your requirements with minimal modifications, you could be missing out on significant cost savings. One example of this is using a supplier who doesn’t offer the exact product that you need, but has something very similar that meets most of your requirements. You may be able to save enough money by accepting slightly different features or performance characteristics to offset the cost of making any necessary modifications yourself.
4. Partner with suppliers, not just buyers
Use the purchasing process as an opportunity to develop partnerships with the right suppliers. When contracts are up for renewal, be sure to include existing suppliers in the review process and provide them with information on what you value to help them improve their performance.
5. Reduce the number of contracts
Cutting down on the number of contracts you have will make it easier for everyone involved to stay on top of things. It also gives your company more leverage when negotiating prices with suppliers, since you’re not competing against other companies for their products or services.
6. Stick to the contract terms
If you decide that a supplier needs to improve its performance, work together to develop a plan; don’t just walk away from the contract because you’re unhappy with the service or product quality. Some issues can be resolved without changing suppliers, and if you do decide to move on, it’s better to do so using a formal termination clause rather than forgetting about an important aspect of the contract and hoping no one notices.
7. Allow Employees to Make Purchases Directly
You can save money by allowing employees to make purchases directly from vendors. This approach allows them to spend their time focused on things that matter. If an employee has to work with a purchasing department, it may take longer for them to get what they need.
8. Negotiate With Vendors
Many businesses don’t realize how much leverage they have when negotiating with vendors. You should always negotiate prices if you see an opportunity to do so. The worst-case scenario is that you don’t save any money, but the best-case scenario is that you save a lot of money. It never hurts to try and it’s one of the easiest ways you can reduce costs at your company.