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By Albert Njamen, Phd, MBA, CSCS,CPP,CHML,CSFA HOW TO MAKE PROFIT IN PROCUREMENT
With the rise of competition , it has become very difficult for enterprises to make profit from their sales; most enterprises , with the latest development in supply chain are trying to create profit in other processes of the supply chain.
A recent study has shown that 50% of expenses in most of companies are made in purchasing and 5% reduction in purchase cost can increase profit by 50% , this is equivalent of increasing sales by 50% which is very difficult in our competitive environment.
Procurement is becoming more and more strategic because it is a discrete niche of gain in the supply chain. We will present below five steps of making profit in procurement
– Spend consolidation
It will help to set good data to avoid leakage, and bring more visibility with clear cost savings targets. Spend consolidation is linked to supplier consolidation.
– Supplier consolidation
It involves the reduction of number of suppliers and we need to prepare to manage the risks related to this action. Managing less suppliers will provide savings in the finance administration inputs and it will also reinforce relationship with suppliers
– Sourcing
Especially sourcing from low cost countries (LCC) . This will help to reduce purchasing costs due to the advantages offered by those countries. A good example is IKEA that did 20 % savings by moving some of its activities to China.
– Sustainable procurement
Savings will be realized by developing the total life cycle cost approach with more consideration for the cost over each phase.
– Contract renegotiation
After knowing the standards costs for each category of product in the market and cost structure of the supplier, renegotiation can be initiated to share profit
Gain in procurement is such important that many companies are organizing tailored capacity building seminars for their procurement staff to render the enterprise more competitive.
If you are in need we can be of help to upgrade your skills in procurement .
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