Simple Savings in Purchasing & Procurement

Aggregation of orders - Aggregating order requests from all departments, increasing leverage when going to market, and saving on other costs such as processing and freight.

Bulk Quantities - The higher the order quantity the more leverage you have to bargain on pricing, but only order in bulk where beneficial to have the extra stock.

Cost Avoidance - eg: Lock in good rates for a fixed period, avoiding any market increase etc.

Develop an awareness of savings opportunities, so none are missed!

Educate vendors on potential quantities you may order over time, so they can quote to suit.

Freight Spot-Quotes - Put a policy in place that a spot-quote must be obtained for any larger freight, even if you already have great rates in place! This can save thousands!

Good price checking procedures to ensure not being overcharged on invoices by suppliers - eg: 3-way check

Have purchasing cards for low spend/low risk purchases, saving money on processing time.

Information Accuracy and Completeness - eg: naming conventions, adequate detail - allowing Procurement to shop around with little hassle, and get the best savings.

Justify purchasing decisions with an evaluation process (quick or extensive evaluation depending on value/risk level), so you consider all factors and therefore make quality decisions.

Keep an eye out for maverick spending, and put in processes to stop it. eg: All purchases have an approval process, and must go through the ERP inventory system which links materials to preferred vendors/contracts. Overcome objections from personnel who want to keep buying from their regular supplier despite paying a premium. Show them the potential savings so they understand the costs of their decisions.

Limits of approval regarding purchases - eg: purchases over $15000 are to be approved by a Manager etc, puts controls in place to stop inappropriate spend and errors.

Material Resource Planning (MRP) - ensure good MRP processes are in place, so money is saved by a: not running out of critical inventory and b: not tying up cash in over-stocked inventory.

Negotiate prices and supplier costs to achieve best possibly savings! And don't forget good internal negotiation with stakeholders and peers, otherwise your savings initiatives may never come to fruition.

Offer the appropriate feedback to unsuccessful bidders in an RFx process. This will allow them to work on their weaker points and potentially offer a more competitive bid on the next round.

Process Improvement - eg: finding quicker and smarter ways of processing transactions in your ERP system, so focus is spent on value-adding activities.

Quotes from at least 3 suppliers when going out to market.

Risk Analysis - to mitigate or eliminate any costly occurrences. eg: risk of not receiving bottleneck items in manufacturing

Spend Analysis - look for too many suppliers in one category, look for price creep, look for large spends in a category with no contracts in place, look for large amounts of separate invoices from one supplier etc - take action!

Technology - eg: to save time and money utilizing technology - e-procurement, cloud computing, Electronic Data Interchange, e-tendering

Utilize existing contracts - reduce leakage

Vendor Relationship Management - working with suppliers can realize benefits such as shorter lead times, priority access to stock etc

World-Wide Sourcing - because it’s a global market, not just a domestic one

EXcercise good contract management and review - Opportunities await! eg: A supplier may substitute contracted items for ones that give them higher margins. Good contract management can keep on top of this happening and/or allow for better savings.

WhY pay premium when a lower specification will do the same quality job?

Zero Purchase - When NOT purchasing is a better option

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What is Cost Avoidance in Procurement?

Cost Avoidance is the actions taken by a Procurement professional to avoid future costs. It is less tangible than direct cost savings.

An example of Cost Avoidance is locking in material rates with a supplier to avoid a future price increase. Another example is negotiating free freight with a supplier to avoid future freight costs.

Related Procurement Topics:

What is Life Cycle Costing?

What is Procurement Spend Analysis?

A-Z of Procurement

Affiliated Procurement Courses To Fast-Track Your Career:

  • 14 Purchasing Best Practices
  • Savings Strategy Development

  • What is Six Sigma?

    Six Sigma is a business methodology that aims to improve quality and performance by eliminating defects to a statistical quality of less than 3.4 defects per million units.

    Six Sigma initially was used initially in manufacturing industries but can be applied in most other industries.

    Related Procurement Topics:

    What is Total Quality Management?

    What is Benchmarking?

    What is Lean Manufacturing?

    A-Z of Procurement

    Affiliated Procurement Courses To Fast-Track Your Career:

  • 14 Purchasing Best Practices
  • Savings Strategy Development