Today, procurement strategies are more a part of a business's success than ever before. Not only has technology given companies the opportunity to truly make purchasing more efficient and inexpensive, but companies are now spending a larger percentage of their revenue on products and services than they were thirty years ago. Most manufacturers spend around 60% of their money on the supplies that are necessary to keep the business running. As a result of these changes, more companies are needing to put in place some best practices that can guide their purchasing decisions and that can help them make their business a success.
Before evaluating any best practices, however, companies need to have a handle on one extremely important aspect of their business: the cost drivers. Cost drivers are all those elements and ingredients that determine the total cost of a business process. Once they've identified those elements, they can then take action and try to lower those costs whenever possible. Plus, companies can continue to investigate those elements and to assess possible alternatives or changes that might save them further money. Unfortunately for many businesses, this information is not something they already know. Many companies simply don't have a clear understanding of what these cost drivers are, and this cripples their ability to develop best practices right from the start.
Once those cost drivers have been identified, the best practices associated with the management of these drivers can be implemented starting with the maintenance of supplier relationships. In the past, these relationships were almost non-existent because buyers and sellers related to each other in a confrontational way. Buyers chose suppliers as they were needed, based on costs, and moved on to a new supplier next time. That type of approach is often too short-sighted to be effective. Instead, another alternative is to focus on picking a number of suppliers who provide reasonable prices and quality materials, then forging a long-term relationship with them. In this way, businesses secure their line of goods and can forgo the extra costs and delays of finding new suppliers all the time.
Another best practice is the wise use of technology. Many businesses make the mistake of bringing in costly and complicated new technology, then leaving their workforce to learn how to use it and to adjust to the dramatic change. They also wrongly view the implementation of new technology as a procurement strategy when it is really simply a tool that enables a strategy to be successful. Before new technology is brought in to the purchasing picture, a sound supply strategy needs to laid out and that technology needs to be placed in the right part of the big picture.
The next best practice that will help companies develop a successful procurement strategy is strong support from the company's top management. Many of these managers take a completely hands-off approach, but their involvement can be helpful. First, they need to provide adequate funding for the program. When there's not enough money, the program will never work. They need to hire individuals who are knowledgeable about the program being implemented and who will be able to implement a strategy. Additionally, they have to convince the lower level managers and employees that they are truly committed to the endeavor. No one wants to spend months learning new technology and adapting to a new approach to doing business if it is simply going to be changed at a moment's notice.
Finally, companies should take a team-based approach to procurement. The purchasing department should not be solely responsible for making the company's strategy a success. Instead, it should involve individuals from throughout the company and from all different departments. In teams, company personnel can work together in order to achieve the larger goals of the business's designated procurement strategy.
Overall, adopting a few key best practices for business's procurement strategy can truly make the difference between success and disappointment when it comes to implementation.