How does your business handle procurement management? There are businesses that stick with the same suppliers for years without shopping around, that do not take other factors from the business into account when managing purchase orders, and only ever order materials after their inventory runs dry. If that sounds like your business, here are three reasons to put more thought into procurement management.
1) Bad arrangements increase costs.
When any business pays more than it needs to for materials and inventory, the extra cost will either hurt the company competitively or it will eat into profit margins. Either scenario will hurt your business in the long run. “70 percent of troubled projects results from commercial issues rather than technical issues,” according to a representative for the Global Contract Management Association, in an interview with Thomasnet. The first step of managing your procurement effectively is taking account of what your current procurement arrangements are and whether they meet the needs of your business. This requires organized bookkeeping and reports—not hundreds of loose invoices—to identify the volume and costs of your procurement. Once you have your requirements and current costs clearly laid out, your procurement manager will be in an informed position to either negotiate with your suppliers or shop around for more competitive arrangements.
2) Not all purchase orders are alike.
An effective procurement manager’s job should not be limited to keeping your warehouses stocked. To earn their keep, procurement managers have to take into account a long list of factors that can save a business money and time. Factors that require attention from a procurement manager include shipments that have a high unit cost, an extended cost from purchasing in volume, significant lead time, and shipment rejection rates—these are just a few of the factors listed in Entrepreneur magazine’s guide to creating a formal purchasing program. A lack of planning can result in increased costs through inefficient purchase quantities, longer lead times, and lost sales.
3) Lead times have an impact on shortages.
If your business is not on top of purchasing products which require significant lead time, you will be at a disadvantage when your business needs to meet time-sensitive goals. If you need to make a sale and your materials are on a barge in the middle of the ocean, your clients and customers will find another provider.
If you want to take procurement management seriously, you need give your team the tools they need to save your business money, time, and sales. Our OfficeBooks inventory management software was developed with procurement management in mind. In one cloud-based application, you can plan ahead by tracing the complete cycle of purchase orders, set minimum inventory triggers, send prompts to buy goods when sales orders exceed what is available in inventory, and save time with instant email notifications for your vendors. OfficeBooks is free to try for up to 5 users and 25 records.
How have you changed the way your business handles purchase orders and procurement? Share your thoughts in the comments below.