How Changes in the Procurement Process Are Impacting Finance

Spend Matters welcomes this guest article by Jim Wright, vice president of sales at Corcentric.

One of the biggest changes in midsize firms across corporate America has been a shift toward a procurement-centric buying process. Yet surprisingly, many companies don’t necessarily have sophisticated procurement departments to handle this efficient way of doing business.

The impetus behind this paradigm shift is the cost savings that can be realized when moving to a purchase-order based system. Relying on new technologies, companies can now automate the procurement process by putting rules in place that govern purchasing decisions throughout the organization.

Software as a service (SaaS) has been a great enabler of this shift because midsize firms no longer see the need to shell out large capital outlays for hardware and software. Instead, these companies are contracting with partners to offload pricing and delivery negotiations. The partners may also provide group purchasing programs that enable buying agreements as part of an existing network.

One of the biggest advantages, among many, of the move toward procurement-centric buying is a midsize firm’s ability to control maverick spend. Partners with procurement expertise in often overlooked categories, such as office supplies, building maintenance and repair products, can help companies chip away at costs that are quietly but aggressively impacting profits.

By controlling the spend upfront, companies moving to a group purchasing program are realizing cost savings up to 5% in the area of indirect spend alone, according to a report titled “Indirect Procurement Optimization” from EY, an assurance, tax, transaction and advisory services firm. The overall impact on an organization’s bottom line is 1%–3% savings, the article indicated.

So why isn’t every midsize company going that route? One of the challenges to decisive action is too much choice. There are a lot of software companies offering technologies to control spend, making it difficult to decipher where the true value can be found. As a best practice, companies should select a partner that offers a technology component bundled with a robust procurement program. In this way, they can leverage efficiencies throughout the entire organization.

If an organization has multiple geographic locations, it’s critical that its partners have suppliers in their network with a national account footprint. Contracted pricing needs to be made available to each location.

Many midsize companies have the will to move toward a purchase-order-based process, but not the way. Without the proper internal resources, they lack the ability – and the time required – to negotiate rates with the many suppliers they are engaged with on a daily basis. Or worse, they aren’t even aware that these purchasing programs provide a no-risk environment that allows them to procure items at a lower rate.

Historically, procurement has been perceived as a back-office function. But when the cost savings begin to accumulate with a procurement-centric model, count on this function to become a top priority in the executive suite, especially when considering that indirect spend can represent a whopping 20%–50% of a company’s expenditures, according to the EY article.

Small savings plus time efficiencies equal hidden profits. Procurement-centric buying is the process to bring them home.

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