Procurement optimization: Strategies and key enablers
Procurement optimization prioritizes the leveraging of advanced technologies and enhancing current processes to achieve increased organizational efficiency, cost savings, improved data quality and controls. When preparing for a procurement optimization journey, it is important for an organization to evaluate the entire P2P landscape and impacted parties. Key stakeholder groups like finance, accounting, supply chain, HR, security, and legal all play a critical role in achieving a successful future state.
Typical triggers for P2P optimization include struggles integrating outdated systems, poor data, and manual processes. To drive improvement in these areas, organizations can categorize their considerations into two major groups: sourcing and supplier relationships and procurement activities and metrics. Below are procurement strategies and key success enablers for organizations looking to optimize their P2P functionality:
1. Sourcing and supplier relationships:
- Structured, periodic supplier negotiations: This is a key factor of the supplier assessment strategy that helps ensure that quality, service and costs are being met. This planning step is essential for successful negotiating with suppliers resulting in better pricing, conditions and more favorable contract terms.
- Build meaningful, sustainable supplier relationships: Prioritizing supplier relationships with a focus on curating a strong, collaborative partnership can drive innovation and sustainability that reduces costs and minimizes risks for organizations.
- Sourcing capable, qualified talent: Strong talent sourcing is crucial to executing meaningful organizational improvements and to ensure that suppliers are fulfilling their contractual obligations. These resources will assist in identifying suppliers and channels that align with the organization’s budget and quality standards.
2. Procurement activities and metrics:
- Implement self-service portals: The automation of procurement activities is key to decreasing manual time and effort to complete procurement activities. Self-service portals can help reduce procurement cycle costs by streamlining the document exchange process and shortening the time required to process documents.
- Evaluate purchasing card programs: P-cards may be deployed across organizations to provide cost savings for low-cost, high-volume purchases and reduce the transactional cost of procurement. Implementing proper controls, expense monitoring, and policies ensures a consistent control environment is maintained organization-wide.
- Implement automated matching: Handling supplier invoices and high transaction volumes can be overwhelming for businesses. Two- or three-way matching is an essential control mechanism that helps detect master data, supplier and receiving errors. It is an excellent way to create a feedback loop for suppliers and the business and to drive continuous improvement.
- Expand electronic invoicing and invoice presentation: Accounts payable issues are primarily caused by the continued use of paper invoices. This outdated method results in longer processing times and higher error rates. Companies should consider transitioning to electronic invoices to address these challenges.
- Spend management: Utilizing spend and performance metrics provides crucial performance measurements for current procurement processes and identifies areas for improvement. Implementing global procurement policies can prevent rogue spending by setting approved spending limits and outlining preferred suppliers.
