CorePower Yoga has saved up to $61,000 per month since they centralized their purchasing. $11,000 came from new vendor discounts. A whopping $50,000 came from the elimination of rogue purchases.
Fifty thousand dollars might sound shocking, but it’s not that uncommon. In fact, 80% of a business’s invoices are generated by uncontrolled buying. When businesses don’t centralize their purchasing, they can’t keep a close eye on what employees are ordering, nor can they pinpoint waste. Not to mention, they duplicate efforts across the organization, allowing several to hundreds of employees to go through the same process of sourcing, submitting orders, and processing payments.
If your business purchasing is scattered across multiple departments or locations, you’re wasting precious time and capital. Centralize your purchasing to reduce operating costs and improve quality control.
What is centralized purchasing?
Centralized purchasing means bringing all of your business’s purchasing under one department, system, or technology.
Businesses with only one location centralize their purchasing by coordinating purchases across teams and departments. Franchises go a step further, coordinating purchases for multiple business locations. Regardless of the business’s size or structure, the idea is to eliminate purchasing in silos and improve management’s visibility into spend so that it’s easier to control.
Centralized purchasing reduces procurement costs
It pays to be organized. When you plan out business spend and look at all orders as one collective whole, you can save a lot of money. Centralized purchasing eliminates wasteful spending on duplicate orders or purchases that fall outside of company policy. At the same time, it unlocks discounts on bulk orders and reduces shipping fees.
Eliminates Maverick and duplicate spend
Centralized purchasing reduces the likelihood that businesses will waste capital on duplicate or maverick spend.
Jes Batting, a sourcing and procurement specialist at PA Consulting, wrote in Supply Management that in her experience, it was common to find 80% of a business’s “invoices are generated from uncontrolled buying.” This held true, Batting said, “even in large organisations with professional procurement functions.”
How does this happen? There are, of course, rule-breaker employees who don’t adhere to prescribed budgets or preferred vendors in the business’s purchasing process. Decentralized spend makes it difficult to catch this uncontrolled spend. Purchases are coming in from so many employees across various departments and locations — it’s hard to keep a watchful eye.
When purchasing is centralized, however, businesses can implement an approval process that deters employees from purchasing outside of their company policy.
Centralized spend also makes it easier to spot when two employees or departments are unknowingly paying for the same service. Let’s say both the marketing and the sales team decide independently of one another that they want to invest in the same new software tool. Without centralized purchasing, the two departments subscribe to the software separately and never know the business paid twice.
Unlocks discounts on bulk orders
Many vendors offer discounts on bulk orders — but you have to actually buy in bulk to redeem those discounts. Centralized purchasing makes it easier to do that.
When businesses make one collective purchase, they drive up the number of goods ordered and the total price of their order. Often, this boost creates eligibility for discounts from the vendor and saves the business money on procurement.
Reduces shipping fees
Similarly, businesses can save money by lumping orders into one shipment. It’s cheaper to ship several items together than it is to ship them one by one.
Many vendors even incentivize bulk orders by offering free shipping discounts for high ticket orders.
Centralized purchasing saves employees time
Operations and accounting departments both suffer from inefficient, decentralized purchasing processes. Centralized purchasing simplifies ordering for operations teams and, in turn, reduces the number of invoices created through ordering.
Purchasing for a business can take up a ton of time, especially when needs are distributed across locations and orders are spread across multiple vendors.
Why have office managers in each of your seven locations ordering on an as-needed basis for their business from several different vendors? That’s inefficient and a headache.
Instead, save time by centralizing purchasing. Designate one person to submit every location’s orders together, or use a procurement technology solution to make it easy for managers to submit orders as a collective unit.
Think of all the orders your accounting team processes from Amazon. How much time could they save if those orders were consolidated and generated only one invoice?
When multiple locations or departments order together, they minimize the number of invoices accounting has to process and reconcile. This also saves the accounting department a ton of time at month-end close and during tax season.
Centralized purchasing ensures consistent quality across locations
To retain happy customers, you have to manage their expectations. That means offering a consistent experience across locations. When your purchasing is disjointed, it’s hard to ensure that consistency.
Say you’re operating a cycling studio chain. If one of your studios offers Kiehl’s products but another offers Dove, you’re creating an inconsistent customer experience that could cost you. Customers who first visit the studio with Kiehl’s products will expect to always see Kiehl’s products in your locker rooms. If they opt to take a class at your studio that uses Dove, they’ll be disappointed (nothing against Dove, people just really love Kiehl’s) and may not return to another class.
If you just centralized the purchasing of bath products for the broader organization, you would avoid this scenario.
Consolidate your business orders with the right technology solution
The simplest way to centralize purchasing is with a sophisticated procurement solution. That way, employees from multiple departments and locations can order what they need from one centralized platform.
Order allows you to centralize every part of your procurement process — from sourcing to invoice reconciliation. In addition to saving businesses like CorePower Yoga tens of thousands of dollars per month, our platform makes it easy for operations managers to procure supplies and reduces the number of invoices accounting teams need to process.
Get in touch with a member of our team or request a demo.