20 Tips for Procurement Savings

As budgets tighten and companies streamline their spending, many businesses are looking for ways to save significantly on procurement costs. 

What these companies may overlook, however, is that better procurement outcomes result from the combined impact of many small, systematic changes made over time. These changes directly impact the cost-effectiveness of indirect spend, which is often one of the most significant cost centers on the books. 

Download the free ebook: The Complete Guide to Procurement Management KPIs

We’ve compiled the top 20 ways to streamline your P2P cycle and save money on procurement in 2023. In this article, you’ll learn:

• Cost savings and cost avoidance as procurement savings practices
• The top 20 ways to increase procurement savings all year long
• How technology makes procurement savings faster and easier 

Cost savings versus cost avoidance

When it comes to keeping money in the bank, there are two types of savings companies practice — cost savings and cost avoidance. Cost savings is the one more frequently touted by leaders, but cost avoidance is just as important.

Cost savings means reducing costs associated with a project, department, or location. You achieve cost savings by eliminating unnecessary waste and streamlining processes. Cost savings could also include switching from expensive products or services to cheaper alternatives. Companies use cost savings to reduce expenses, increase efficiency, and maintain their competitive advantage.

Cost avoidance is about stopping spending before it occurs. Cost avoidance strategies include negotiating better deals with suppliers (for instance, avoiding scheduled cost increases or locking in interest rates), performing maintenance to avoid future replacement costs, outsourcing tasks or processes, and finding new ways to streamline operations. 

Ebook

The Complete Guide to Procurement Management KPIs

Dive deep into how your team can benefit from tracking procurement KPIs, the 15 most important KPIs to track, and a detailed worksheet to help you calculate which KPIs suit you!

Download the free ebook

Top 20 ways to increase procurement savings

Here are the 20 best strategies procurement leaders and managers use to positively impact spending: 

1. Create policy education for stakeholders: Well-documented spend policies establish expectations for buyers and decision-makers. Such policies provide education and resources to help everyone spend efficiently and practice proactive procurement.

2. Practice strategic sourcing: Transactional procurement often costs more than a strategic sourcing approach. This increased expense is reflected in cost per unit, vendor responsiveness, turnaround time, and other soft metrics. Establishing strong supplier relationships has quantitative and qualitative benefits for organizations.

3. Consolidate vendor lists: Vendor overlap decreases leverage by spreading spend too thin. Vendor list consolidation establishes stronger relationships and reduces vendor management's labor and associated costs.

4. Curb maverick spending: Spending outside the documented procurement process drives up costs and creates information silos. Instead, enforce procurement policies and find methods to reduce corporate card expenditures and spot buys.

5. Establish spend approval rules: Once your procurement policy is in place, establish approval workflows and guidelines to ensure every purchase request receives adequate review. These guidelines may be based on order size, product category, location, role, or department. For larger contracts, include legal and security reviews in your workflow.

6. Decrease third-party risk: Companies spend millions of dollars annually mitigating the impact of information breaches and procurement fraud. Establish risk management practices within procurement to protect against these costly incidents.

7. Leverage your logo: Use the power of your logo to secure better pricing and terms during negotiation. For instance, many vendors will consider a discount or more flexible terms in return for a testimonial or case study from a top-tier business partner.

8. Audit procurement costs: Many unnecessary costs fly under the radar due to a lack of regular reporting and spend analysis. Commit to a regular analysis cadence to find savings opportunities and make contract adjustments. Small improvements over time offer thousands or hundreds of thousands of dollars in cost reduction.

9. Use category management: As part of cost management, understand which spend categories represent your largest capital investment. Establish category management practices that address these big-ticket areas to find savings opportunities.

10. Leverage volume discounts: Consolidating vendor relationships allows you to consolidate purchasing for your most frequently used supplies and services. Leverage volume discounts as a cost-saving measure for products and consumables across the organization. For organizations that don’t need the volume necessary to leverage this strategy, look into enabling better pricing by purchasing through a Group Purchasing Organization (GPO) or a platform like Order.co.

11. Audit expense reports: Expense reporting is another area where unauthorized spending occurs. Periodically auditing reports help identify spending outside of prescribed limits. It also identifies recurring purchases on employee credit cards that spend analysis efforts can’t capture.

12. Manage inventory levels: Over-ordering and poor inventory management present liability issues and inefficiency in cash flow. Perform inventory audits and manage levels to prevent overages and shortfalls, especially since making up for shortages might mean incurring extra fees on rush deliveries.

Ebook

The Complete Guide to Procurement Management KPIs

Dive deep into how your team can benefit from tracking procurement KPIs, the 15 most important KPIs to track, and a detailed worksheet to help you calculate which KPIs suit you!

Download

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13. Streamline logistics: Trucking and logistics costs add up quickly when delivery services are too centralized. Wherever possible, streamline logistics across locations to save on expensive trucking and warehousing fees.

14. Conduct price benchmarking: Understanding how current vendor pricing compares to industry or internal benchmarks allows procurement to negotiate more effectively. This ensures your contract performance metrics remain strong over time.

15. Consider multi-year agreements: Executing a multi-year contract with a trusted vendor often ensures lower prices for the contract's duration. Additionally, you could lock in interest rates and improve terms that increase cost savings and the deal's overall value.

16. Reduce manual accounting work: Manually managing the procurement and accounting process is expensive and inefficient. Errors in accounts payable processes result in extra fees, double payments, and the loss of early payment discounts. Reduce manual data entry and processing to drop your per-invoice accounting cost and save valuable overhead.

17. Negotiate discounts: Build strong vendor relationships — they allow you to negotiate for better contract terms beyond the bottom line. These may include better payment terms (which improves cash position) or early pay discounts for being a responsible customer. Vendors are often willing to work with clients to secure mutually beneficial terms. 

18. Establish procurement KPIs: To improve cost savings, you need a way to quantify results. Establishing desired procurement goals and building success metrics to monitor progress increases savings. Choose metrics like contract performance, supply chain efficiency, and the total cost of ownership. 

19. Establish role-based spending limits: Outlining spend policies by department, role, organizational level, and team or location fine-tunes budgeting across the organization. Build dynamic controls to ensure everyone knows appropriate spending limits and where to go for exceptions. 

20. Use spend management software: Spend analysis software brings every type of expense into focus, allowing finance and accounting teams to plan and execute budgets and forecasting efficiently. Spend management platforms offer granular data about company spending, revealing opportunities to realize cost savings and cut unnecessary spending.

How Order.co helps procurement professionals increase procurement savings

Using spend management software tools to organize and automate the procurement process offers easy access to preferred vendor lists. Here are some of Order.co’s top features: 

• Curated ordering from a preferred list of vendors to ensure lower third-party risk and consistent vendor performance
• Spend analytics features to examine spend and make data-informed decisions about future budgets and spending
• Automation workflow for approvals to ensure every purchase meets organizational standards and receives proper review

To learn more about Order.co and its power to streamline your process and your costs, request a demo today.