Every company is looking to lower costs and increase profitability. Each year, company management devises new initiatives to cut costs and boost productivity. However, one area that is often overlooked by company management is the purchasing department. The purchasing department is usually in charge of purchasing direct goods (fall into the cost of goods sold) and indirect goods (other areas like office supplies, computers, etc). The efficiency and effectiveness of a purchasing department is often difficult to quantify. However, it is worthwhile for companies to examine purchasing departments since cost savings in the purchasing department translate directly to the bottom line.
New purchasing software equipped with advanced RFQ, automated bid submission, and automated negotiation have made it possible to realize significant cost savings from the purchasing department. While e-procurement can offer companies a lot of tangible benefits, it takes specific knowledge of software and the purchasing process to maximize these benefits for the company. This article will describe some areas where specific knowledge of the purchasing process can lead to cost savings and efficiency gains when this knowledge is used in conjunction with software.
Spend Analysis: A knowledgeable partner will help you obtain detailed procurement goals and objectives and provide detailed views of current and projected spend. Once current spend has been analyzed, a knowledgeable partner can help develop actionable strategies to support goals. Technology can then be used to develop capabilities to manage and analyze spend going forward.
Market Analysis: If a company is going to purchase a particular type goods in the open market, the buyer / partner will need to understand the market dynamics. This means having a knowledge of the average prices, key suppliers, drivers of value. This will also determine which procurement methodology will be used to purchase the goods. For example, if there is only one or two suppliers of a particular item in the world, an auction event will not work.
Supplier Sourcing: One of the biggest problems that buyers face in setting up automated procurement events is supplier participation. For large procurement events, the addition of an additional supplier will enable the buyer to obtain a much better price. This calls for expertise in supplier sourcing and requires the ability to locate new, qualified suppliers.
RFQ Creation: The way that an RFQ is worded can often have a strong impact on how a procurement event unfolds. Each RFQ should contain enough information for a supplier to make a bid. Depending on the type of item, this will include delivery terms, payment terms, and specifications. An experienced RFQ creator will know what suppliers are looking for and will understand the key drivers of price.
Supplier Invitation: The decision of which suppliers to invite has a profound impact on the way a procurement event progresses. Generally, the more suppliers participate, the better that the event will work.
Event Structuring: To maximize the value of powerful, feature rich purchasing software, knowledge of how to structure the procurement event will be necessary. This includes knowing what information to show suppliers during the event, the type of logic to use for the event (sealed bid, dutch, percent over cost, vickrey, etc).