{"id":16264,"date":"2023-03-14T12:04:34","date_gmt":"2023-03-14T09:04:34","guid":{"rendered":"https:\/\/k-house.in.ua\/?p=16264"},"modified":"2023-03-14T12:59:54","modified_gmt":"2023-03-14T09:59:54","slug":"10-cost-reduction-strategies-in-procurement","status":"publish","type":"post","link":"https:\/\/k-house.in.ua\/en\/10-cost-reduction-strategies-in-procurement\/","title":{"rendered":"10+1 Cost Reduction Strategies in Procurement"},"content":{"rendered":"

Cost reduction is still a #1 priority for procurement. This blog gives you 10 + 1 strategies for cost reduction in procurement: from short-term wins to medium and long-term strategies.\u00a0<\/span><\/h3>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

Holistic risk management\u00a0is a broad strategy often managed at the corporate level. The role of risk management within procurement means ensuring that the correct management controls are in place, especially for ad-hoc and emergency purchases.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

Cost reduction usually refers to cost savings made during a purchasing process, but it is much more than that. It includes savings made through re-negotiation of contract terms and conditions, administrative and operational process improvements, and the intelligent use of data and technology.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

This blog post is a recap of cost reduction actions you can take in the short to long term.<\/p>\n

These actions require thought, planning, and possible investment in resources. However, they have the potential to pay off much more in the long term!<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

Here are 10 cost reduction strategies:<\/strong><\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

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Short term initiatives and quick wins:<\/strong><\/h4>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

1. Revisit current contract terms<\/span><\/h2>\n

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It\u2019s an acceptable practice to\u00a0challenge the terms of an existing contract. Any contract not reviewed for more than three years should offer some savings opportunities.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

It is likely that some pricing has become uncompetitive and that there is scope for\u00a0revisiting payment terms. Opening discussions with your suppliers about potential changes to purchasing frequency can lead to volume discounts.<\/p>\n<\/div><\/div>

Economic environments change, consumer consumption patterns shift, and technology moves on. Market research and benchmarking provide an opening to discuss pricing with your suppliers.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

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2. Challenge specifications<\/span><\/h2>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

The first step is to ask the question \u2013 do we really need this product or service? Once that is settled, analyze the extent of the need and, on that basis, review the specifications or design.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

Product specifications and packaging are often based on supplier proposals or set with one particular supplier or brand in mind.<\/p>\n

Requirements based on expected performance or outcome allow for increased competition by a broader range of suppliers.<\/p>\n<\/div><\/div>

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3. Eliminate maverick spending<\/span><\/h2>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

Maverick spending\u00a0refers to unauthorized purchasing outside agreed contracts. It is also sometimes termed rogue spending or spend leakage.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

It can account for a large percentage of all purchases where there is no centralized purchase-to-pay (P2P) procurement process and can be a significant challenge to cost savings initiatives.<\/p>\n

Visibility from\u00a0full spend analysis\u00a0will highlight this uncontrolled spending and make way for more automated controls.<\/p>\n<\/div><\/div>

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4. Challenge operational costs<\/span><\/h2>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

Proper procurement planning helps reduce costs by ensuring the best use of administrative resources. Poor planning leads to expensive emergency procurement actions and high transport costs.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

By streamlining internal P2P processes, whether automated or not, you can reduce transactional costs and additional documentation.<\/p>\n<\/div><\/div>

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5. Review uncompetitive suppliers<\/span><\/h2>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

The benchmarking process done when reviewing contracts can highlight other similar suppliers in your database that are not competitive.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

These suppliers can be approached to reduce their costs in line with the market or failing that, can be removed by moving that spend to more competitive suppliers.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

Active management of strategic suppliers\u00a0and consolidating the total number of suppliers are critical to maximizing procurement savings. Fewer suppliers to manage leads to a more efficient process.<\/p>\n<\/div><\/div>

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6. Use the data you have<\/span><\/h2>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

Clean, complete, and timely data is critical for embarking on any savings initiative.<\/p>\n

Reliable information on past purchases and supplier performance can highlight opportunities and drive re-negotiation efforts.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

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Medium- and longer-term initiatives:<\/strong><\/h4>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

With short-term wins out of the way, here are some more deliberate strategies that can take more time.<\/p>\n<\/div><\/div>

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7. Investigate outsourcing<\/span><\/h2>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

Outsourcing is a strategy through which non-core procurement activities or functions are transferred to specialist external providers.<\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div><\/div><\/section>

[vc_cta h2=””]It is especially suited to indirect procurement categories such as facilities management, security, transportation, and logistics. The cost reduction benefits are:<\/p>\n