The Benefits of Strategic Business Procurement
By Editorial Staff
Supply & Demand Chain Executive
New white paper suggests it can actually increase profits and quality
Procurement of goods and services supporting a company's internal operations, such as temporary help, travel or maintenance, involve expenditures that are often poorly managed.
Not only are millions of dollars spent needlessly, but the quality of what's purchased is frequently sub-par, according to a white paper titled "World-Class Procurement: Increasing Profitability & Quality," recently published by Geller & Co., a finance, accounting, procurement and tax outsourcing firm.
The white paper points out that strategic procurement is not a one time activity - it's a continuous and interrelated process with three essential functions: expenditure analysis, strategic sourcing and agreement management. Properly implemented, the first two processes form the basis for identifying and creating value, while the third ensures that value is maintained over time.
The processes are:
- Expenditure analysis performs a "deep dive" into the reality of expenditures - to whom, for what and why. It enables a company to extract value by developing strategies around each category of spend. Such an analysis looks beyond dollar savings and into potential impacts across the entire supply chain including quality and service of goods and services purchased.
- Strategic sourcing can help maximize the value derived from procurement by going beyond the traditional focus on lowest price. It brings into play a variety of tools and strategies such as catalogs, reverse auctions, forward buying, commitments, market inventories and supplier requirements in different operational combinations to achieve maximum client value. It also includes ongoing analysis of a broad range of pricing, quality and market data such as supplier relationships, capabilities, status and technologies.
- Finally, agreement management involves both external and internal actions. Externally, it means managing suppliers to ensure that their performance meets or exceeds contractual commitments. Internally, it means monitoring compliance within the organization to ensure that procurement benefits are fully realized. Without rigorous agreement management, nearly 75 percent of savings gained from strategic sourcing can disappear within 18 months.
