Getting more from your procurement spending
Keeping the wheels of your business turning can be expensive. As part of your ongoing business cycle, you’ll need to buy the goods and services that keep you operational. This might be subscriptions to business software, raw materials for production or even accounting services.
But if you’re going to get the maximum value from this procurement process, it’s important to be fully in control of what you’re buying and how you manage these costs.
Managing your procurement in tough economic times
There’s no escaping the fact that cashflow is tight for many businesses at present. Globally, we’re experiencing a worldwide economic slowdown, alongside the pressures of a supply chain crisis that has pushed up prices and reduced margins.
Because of this, it’s important for you to keep a close eye on your procurement, so you can find the best prices, strike the best deals and keep your business in a positive cashflow position
If you’re using the most expensive logistics partner, or spending too much on raw materials, this can start to have a big impact on your profitability and your ability to grow.
5 key ways to enhance your procurement spending
Keeping your business in a positive cashflow position is all about ensuring your cash inflows (your income) outweigh your cash outflows (your costs).
When your procurement costs are high, it makes it a real challenge to maintain this positive cash position. The answer is to examine your spending and to proactively reduce your costs, improve your supplier terms and generate a tighter and more effective procurement process. If your procurement process helps you cut down on your spending, you’ll also improve the overall financial health of the whole business.
Here are 5 key ideas to help you get in control of your procurement:
- Reduce your base cost per item – if you buy goods into the business, it’s important to think about your basic cost per unit. Your unit cost is difficult to control, but there are ways to reduce it. Try getting multiple quotes from a variety of suppliers so you can source a provider that offers the best mix of value, quality and reliability, at an economical price. Negotiation can also be an effective way to bring prices down.
- Cut your logistics and delivery costs – physical goods have to be transported to your premises and to your end customers. These logistics costs are an integral operational expense, but they can still be reduced as part of the procurement process. Search for carriers and logistics providers that offer the services you need and then see if they open to negotiation on prices. Ask if discounts are offered if you offer shorter payment terms or if you join a preferred customer program to help reduce prices.
- Nurture the best supplier relationships – nurturing good relationships with your suppliers sets the best possible foundations for your procurement management. Building that stability into your supply chain deepens trust and makes it easier to negotiate favourable terms. Put some effort into nurturing good relationships with your supplier and make sure you always pay on time. This helps to build a good reputation with your supplier, making your procurement process simpler and more cost-effective.
- Reduce tax and duty costs – whether you’re selling nationally or across borders, there are likely to territory-specific taxes and duties to pay when buying and transporting your goods. Working with a tax adviser who knows your industry and/or territories helps a great deal. They can check you’re paying the right taxes on your goods/services and that they’re correctly categorised for taxes like VAT or GST. Working with a customs broker also ensures you pay the correct duty on all your imports and exports.
- Using tech to get in control of procurement – business software is transforming the efficing of procurement. There are plenty of cloud-based procurement solutions available, giving you the benefits of 24/7 accessibility in the cloud and one point of truth for all your procurement data and reporting. This helps to streamline your internal processes, manage risk more effectively and keep a close watch on spending against budgets, cashflow and expected expenditure. By keeping yourself informed, you can manage your expenses by putting caps on spending, or switching to new suppliers that can offer you a better deal or cheaper prices.
Talk to us about your procurement management
Taking the time to improve your procurement management is a no-brainer in the current climate. You’ll improve your cashflow, supplier relationships and your ability to ride out the slowdown.
If you want to learn more about this topic and how we can help your business, contact us to set up a FREE consultation so we can get started.
Binghay & Co are Accountants & Business Advisors located in Docklands, Melbourne.
