Procurement is all about getting the best deals when purchasing goods or services for your business. Many companies and businesses are looking to reduce costs on procurement, and if you’re one of them, you are not alone. With today’s surging inflation in the Philippines, procurement cost savings is paramount in keeping your business stay afloat. Reducing procurement costs, even the trivial expenses, can afford you with valuable resources that can be allocated to other expenditures which can help you pursue development in areas that also matters for your business. In this article, we will delve into ways your company can cut down on procurement expenses.
Cost Reduction in Procurement
Cost reduction in procurement is all about reducing in all areas of expenditure, not just about the costs when buying for your business. And within the rising inflation in the Philippines, it is critical for businesses to perform cost reduction strategies in their procurement. In a sense, when buying as a business, procurement on wholesale – getting the best deals and prices from suppliers, is already a cost saving effort to maximize your business profitability.
Cost-Cutting vs Cost Savings
Cost-cutting and cost savings are two related but distinct approaches businesses employ to manage their finances and improve their bottom line. While they both aim to reduce expenses, their underlying philosophies and applications differ significantly.
Cost-cutting is typically seen as a reactive measure and often considered a last resort.Cost-cutting is typically seen as a reactive measure and often considered a last resort. It involves implementing immediate measures to trim expenses when a company faces financial challenges or downturns.
On the other hand, cost savings is a proactive and strategic approach to managing expenses. It involves identifying opportunities to increase efficiency and productivity within the organization, leading to a sustainable reduction in costs over time.
8 Procurement Cost Savings Strategies
- Automate & Centralize Procurement
Getting a full view of your procurement metrics can help you understand the strengths and weaknesses of your overall procurement process. Automating and centralizing procurement data provides a comprehensive and unified view of all purchasing activities across the organization. This centralized approach helps identify redundancies, inefficiencies, and opportunities for consolidation.
- Optimize Payment Terms
Optimizing payment terms is one approach that can yield substantial procurement cost savings for your business. By negotiating favorable payment terms with suppliers your business can better manage cash flow, affording you with larger working capital for other areas of business.
Extending payment terms allows businesses to hold onto their funds for a longer duration, freeing up cash that can be invested elsewhere or used to take advantage of early payment discounts.
- Standardize Terms with Suppliers
Setting standardized terms with your suppliers can facilitate better procurement contract management. With clear and consistent terms, there is less room for misunderstandings or disputes, leading to smoother supplier relationships and fewer potential legal or financial complications. Standardization can include elements such as payment terms, delivery schedules, quality requirements, and performance metrics, among others.
By establishing uniform terms across various suppliers, organizations can simplify their procurement operations and reduce administrative complexities. This approach enables procurement teams to negotiate more effectively and compare offerings from different suppliers on an apples-to-apples basis.
- Negotiate Terms with Suppliers
Working and communicating with suppliers in a win-win situation is key. Point out room for improvements on negotiation terms that can avail you cost savings on procurement, while keeping suppliers happy to do business with you.
On the other hand, if suppliers are amping up prices on unreasonable terms with little-to-no compensation on discounts or free shipping, negotiate with them, ask for better terms. Suppliers are likely to appease terms that can help them sell more products or services.
- Avoid Rogue Purchases
Rogue spending, or maverick spending is one of the culprits of hidden expenses in procurement. By taking action on rogue spending, you can state better terms with your current suppliers or purchase from contracted suppliers. This way, your business can consolidate your procurement cost savings and overall process.
Out of contract purchases, whether it’s trivial costs or not, can affect your finances. Rogue purchases often lack the benefits of centralized negotiation and volume discounts that come with contract-based procurement.
On another note, rogue spending misses out on the cost savings on procurement achievable by bulk purchases and favored terms negotiated with suppliers.
- Evaluate your Suppliers Regularly
Ensuring great success to your procurement efforts that affords you with the best deals and favors your terms from suppliers is no easy task. When your business relies on various suppliers for goods and services, it’s crucial to assess their performance and value regularly. Regularly monitoring your established suppliers allows you to assess whether they can offer your business the most advantageous deals.
Do they provide the best deals for your business? Are they dependable on delivery times? Can you move forward with working with this supplier? These evaluations can help your business determine in optimizing spending and relationships with suppliers, which can lead to lower costs in the long run.
- Buy in Bulk to Reduce Transaction Costs
The purpose of procurement is to be able to buy in bulk or at wholesale price. Not just that, it also affords you to better deals such as free delivery, free invoice, and similar of the sort. When you buy on multiple occasions without achieving the purchase threshold for better deals, this can cost you delivery fees and other miscellaneous costs. However trivial they may seem individually, repeated small purchases can accumulate into substantial costs that diminish your procurement cost savings.
- Diversify Suppliers
Controlling risk is an essential aspect of procurement, and one way is to diversify your supplier roster. As mentioned above, it is important to purchase only from contracted suppliers in order to avoid maverick spending. Having alternative suppliers can minimize the risk for your business.
Companies and businesses are heavily dependent on suppliers for their materials that they need to operate. However, things can go bad on your supplier’s end – which can be out of our control. Unexpected or uncontrollable events wherein your suppliers may not be able to deliver your products or services at the said time. This can be a logistics problem, delayed deliveries due to harsh weather conditions, and much more.
Regardless, if you have alternative suppliers you can get in touch with, your business can recuperate easily when things go wrong with your main supplier.
Why Cost Saving is Important in Procurement
One of the biggest advantages is being able to reduce costs in procurement, which can positively impact your business profitability. When businesses strategize on procurement cost savings, it affords them the opportunity to allocate and invest funds in other areas of their business.
We all know that the surging inflation in the Philippines is also a challenge for businesses. With diminishing purchasing power, it can be difficult to purchase quality goods and services for the same amount of money. Cost saving in procurement is essential in order to deliver quality products and services without compromising.
How Digitized Procurement Help with Procurement Cost Savings
Reducing cost without compromising is key in business success. This allows you to maximize profit margins more effectively. Whether you’re a startup or a large corporation, reducing costs is a top priority. And one way for businesses to earn more procurement cost savings is by digitizing and being guided by data-driven procurement.
To fully understand where your procurement needs improvement, you would need data. As mentioned above, automating and centralizing your procurement is one way to get a bird’s eye view of everything related to your procurement spending, process, and transactions. By gathering and analyzing your procurement data in one streamlined and centralized platform, this allows you to save time and money, hitting two birds with one stone.
By digitizing your procurement, this means connecting your business with an eCommerce platform that streamline your business from supplier orders, online orders sales, without having to go through the tedious process of traditional procurement. This means you can procure items with just a few clicks of a button, and you can automate procurement to reduce manual labor.
How You Can Reduce Procurement Costs with Shoppable Business
No matter how small or how big you can gather from procurement cost savings, every peso counts. And with Shoppable Business, you can ensure that you get your money’s worth for every purchase.
Shoppable Business can help get better payment, negotiation, and contract terms with vetted suppliers in our B2B eCommerce marketplace.
With Shoppable Business’ streamlined seller dashboard that can provide you with real-time data on inventory, purchases, and procurement process, you can facilitate data-driven decision making in an instant.
Shoppable Business has a thing called single product catalog, where multiple suppliers can sell products in a single product page. If your supplier can’t provide products or services on time, other vendors and suppliers are available that can provide contracted purchases, preventing your business from ‘maverick spending’.
Is invoices a problem for your business? Well, for every purchase made, an issued invoice is provided for business that needs it, which can help you to stay compliant with tax compliance.
Why Become a Seller in Shoppable Business
- Access to a large customer base – giving businesses the opportunity to expand their reach and increase sales
- Increased visibility and brand awareness – a platform for businesses to showcase their products/services and potentially attract new customers
- BNPL (Buy now, Pay later) – grow your ASP; buyers/companies can apply for a loan up to ₱150,000.00
Why Become a Buyer in Shoppable Business
- Wide product selection from different categories – a one-stop-shop solution for businesses’ procurement needs
- Save company time and money – Customized orders, RFQ for specific quantities, bundles, configuration, Track their orders, view purchase history
- Need it now but limited budget – BNPL apply and get up to ₱150,000.00
What are you waiting for? Get started with Shoppable Business as a buyer or a seller for your procurement needs.
