3 Procurement Strategies to Reduce Enterprise Costs

by Stan Garber

Procurement organizations are changing how they operate by ditching complex tools and investing in sourcing platforms that streamline and expand sourcing processes.

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In 2014, 69 percent of Chief Procurement Officers in a Deloitte survey stated that reducing costs was their number one priority over the following 12 months. Fast forward to 2018, and the same survey showed this number had increased to 78 percent, an indication of the growing pressure for procurement teams to reduce costs within their business. In today’s sourcing and procurement environment, CPOs are looking for the best solutions to understand where and how much they are spending, how to set goals focused on savings and how to manage sourcing to reach those goals.

In order to achieve these goals while reducing costs, procurement organizations are changing how they operate by ditching complex tools and investing in sourcing platforms that streamline and expand sourcing processes. These tools should encompass accurate analytics, dynamic negotiations, reverse auctions, collaboration, and transparency that unlock cost savings and additional strategic benefits.

1) Dynamic Negotiations and Reverse Auctions lend savings

Procurement teams constantly have their eye on new ways to make a positive bottom-line impact across the enterprise. But it hasn’t always been easy to uncover new means of strategic purchasing, particularly for volume and ongoing procurements. With Dynamic Negotiations, procurement teams can balance price, quality and other essential factors to simplify the process and reduce the cycle time to a successful business outcome. In fact, a global reverse auction survey conducted by Scout RFP shows that enterprises prioritize high quality for a good price rather than awarding the lowest bidder.

When Dynamic Negotiations and reverse auction tools work side by side rather than as siloed tools, they maximize cost savings while building strong supplier relationships by providing overall value to both parties. Having these tools as part of the enterprise’s procurement strategy provides the necessary visibility to successfully negotiate, as all parties can understand requirements, and easily navigate across different scenarios to provide the greatest business impact. 

Typically, when enterprises successfully implement a reverse auction strategy into their purchasing process, they see between 10-20 percent savings. For example, after implementing a reverse auctions solution, a global retail company saved $400,000 in a 30-minute commodity auction because they could expedite their negotiations.  

2) Identifying opportunities for cost reduction through transparency

Without transparency into supplier relationships, procurement teams can’t make informed decisions about risk and cost-saving opportunities. In many cases, procurement teams are “heroing” results by leveraging outdated, manual contract tools that do not provide the collaborative transparency that is needed for impactful results. Manual efforts consume more business hours to complete the process, cost-saving opportunities may get lost in the shuffle, and the enterprise risks losing a competitive edge with a slower go-to-market speed. Legacy tools that were innovative 20 years ago are now holding teams back from reaching full potential. Today’s global marketplace relies on the real-time connections between suppliers, obligations and when these connections are difficult, manual tasks that make contracts hard to find, unavailable to review anytime, manage, and optimize, the business loses their advantage. 

But when teams graduate off of legacy tools and deploy solutions that provide transparency, the enterprise will experience a streamlined and shared view into supplier relationships. In addition to visibility, procurement and the business are able to collaborate actively with suppliers and have real-time visibility into all activities and obligations. With collaborative tools, Sourcing leaders and contract managers have a real-time 360-degree view of the relationship, allowing them to effectively manage contracts while providing ongoing transparency, making the process a win-win for all parties involved.

When suppliers, legal, finance, and stakeholders have this capability, procurement can prioritize progress and track it through every stage, driving a more streamlined end-to-end process. In turn, uncovering more cost-cutting opportunities, closing communication loops faster and allowing them to predict successful business outcomes for long term success. 

3) The importance of collaboration

Collaboration eliminates complexity, bottlenecks, and when steward properly by a project owner, accelerates impactful outcomes. Collaboration across all parties, procurement, legal, business partners, finance, and suppliers simplify communication allowing questions and issues to be addressed quickly, accurately, and efficiently between stakeholders. 

Manual processes and legacy solutions do not facilitate this immediacy, transparency, or provide the real-time visibility needed for true collaboration. Without a platform with collaboration capabilities, sourcing can become a pain for everyone involved. Collaboration across business stakeholders is a proven procurement process that delivers cost savings goals, improves efficiency to deliver more spend under management, and provides exacting needs of business partners. In addition, business stakeholders are invested in the business outcome because they have a clear view of the collaborative goal ahead. Business partners quickly become contributors, rather than spectators, who in turn help foster heightened communication within the enterprise as a whole on procurement’s capabilities.

Best-In-Class procurement teams are leading the enterprise to supplier success and have a measurable impact year-over-year by implementing proper solutions and strategies into their sourcing processes. A recent study states that procurement leaders around the world expect a 40 percent increase in annual savings when using automated procurement solutions. 

By creating an environment of transparency and collaboration between procurement teams, suppliers and business partners, and implementing new sourcing practices like Dynamic Negotiations and reverse auctions, the enterprise creates powerful procurement practices that drive significant change. With a fresh take on sourcing through a next-generation platform, procurement can uncover new levels of cost savings, and manage more spend that lead to direct bottom-line impact. With this mindset, an inward review on cost savings should not be overlooked or come at a cost that is too high. Important factors should be considered such as quality, speed, visibility, simplicity, and value-add when reviewing ongoing processes. When all of these factors are taken into consideration, a new level of sourcing can emerge which empowers the CPO and their team to achieve goals of strategically streamlining and expanding the sourcing processes for the enterprise.

Stan Garber, Scout RFP President and Co-founder