The primary concern of many business leaders today is cutting costs without losing profitability. However, one area that is constantly overlooked in this respect is digital procurement.
According to a new study by A.T. Kearney, procurement accounts for around 30% of a service company’s revenue and at least 50% of a manufacturing company’s revenue, representing both a sizable expense and a major opportunity to transform business performance.
Still, even today, research shows that half of CFOs continue to view procurement as a mere admin function, and not one that could play a crucial role in achieving their business objectives. In addition, over 60% of businesses still run their procurement departments using pens, paper and Microsoft Office. Here we take a look at how your business can actively reduce costs by switching from manual to digital procurement.
What is cost reduction in procurement?
Cost reduction in procurement involves eradicating unnecessary expenses to improve your bottom line and boost your profit margins. This can be achieved by, for example, reducing maverick spend, making your procurement processes more efficient, and having access to more and better suppliers to ensure you get the best possible deals.
“Business leaders outside procurement are not always aware of the daily activities that the function carries out, or the corporate priorities it can support.” Achilles
Making the switch to digital procurement
If your company hasn’t already implemented a digital procurement system, now is the time. Most cost-saving opportunities are centred on measures that are difficult to apply without procurement software - or with a digital manufacturing platform like Orderfox.
“Whilst functions such as accounting and marketing have embraced digitisation and made great strides over time, procurement at most organisations has remained a digital laggard, leaving many businesses unprepared to face today’s rapidly shifting business landscape.” Alex Saric, smart procurement expert, Ivalua.
6 ways a digital procurement system could help your business cut costs
A digital procurement system can help you save money by eliminating maverick spending, finding the best deals, and reducing time and spend on manual, paper-based processes.
Here are just 6 ways digitising your procurement function could help you save money and increase your profit margins:
- Developing realistic financial goals
If you don’t know what you’re spending, or where you’re spending it, it’s almost impossible to improve procurement efficiency. A digital procurement system can provide more visibility and spend analysis, enabling you to set realistic financial goals and create a strategy that helps you reach them.
- Eliminating maverick spending
Maverick spending can have a drastic impact on budgets. A digital procurement system allows you to track onboarding and approvals, taking the risk out of purchasing processes and ensuring the correct level of authorisation for every purchase requisition.
- Getting the best deals
Gaining visibility and access to spend data can drive negotiations for better payment terms, empowering you to secure the lowest prices for the best materials. By using electronic auctions, you can invite potential suppliers to take part, creating real-time bidding to ensure you get the most competitive prices.
- Maintaining budget control
Visibility into available and committed spend means that users can make better informed procurement decisions. Keeping track of all spend creates more robust budget control, guaranteeing that spending remains within pre-set boundaries.
- Reducing procurement fraud
If a business lacks transparency, it can be difficult to identify and trace procurement fraud. Using strong, technology-driven procurement for each and every transaction, which signals when unauthorised spend has taken place, means procurement fraud is essentially eliminated.
- Achieving a more efficient procurement function
By making the switch from manual, paper-based processes to digital procurement, the time needed for purchase requisition approval can be reduced from weeks to a couple of days, thereby increasing efficiency, productivity, and creating a competitive advantage.
Boost your bottom line now with digital procurement
“Digitising procurement can generate cost savings of between 5-10%, as well as increasing efficiency by 30-50%.”
Supply Chain Digital
By adopting a proactive approach to spend management and gaining full visibility into your procurement processes, you can eliminate unnecessary spending and improve your bottom line. And that’s something every business leader wants.
If you want to read more about how digital procurement can reduce your costs, please download our latest eBook "Buyer Benefits through digital procurement: Cost reduction" here.