12 Mar Complexity costs money and wastes time, so keep your procurement strategy simple
In this article, we’ll explore why consolidating and simplifying your supply chain is so effective. Read on to find out how supplier consolidation improves compliance with procurement processes, reduces financial irregularities, streamlines approval processes and increases sustainability.
High-performing organisations tend to have fewer suppliers. In fact, highly-effective procurement departments have 78% fewer suppliers than typical companies. But why is this so important?
Procurement teams are the unsung heroes of enterprise organisations. While other departments such as Sales or Innovation enjoy the limelight, procurement are the ones agreeing the terms with suppliers, looking for savings and double-checking contracts.
Procurement teams are rarely the centre of attention, but they do have a massive impact – and a strategic, consolidated approach to procurement can lead to cost-savings, less admin, more accurate reporting, streamlined processes and better cost control.
More visibility of purchasing
Most businesses will have processes in place designed to control employees’ spending. But inevitably, some purchases slip through the net.
‘Maverick spending’ is spending which is outside of agreed contracts or doesn’t stick to the proper processes. In the majority of cases, it’s perfectly innocent. A purchase might seem too insignificant or there might not be time to go through the proper channels.
Whatever the reason, it can lead to all sorts of problems, such as inaccurate financial reporting, missing out on negotiated savings and increased admin.
Consolidating your suppliers makes it harder for maverick spenders to sidestep processes. If you only have a handful of suppliers, it’s more obvious when people are spending elsewhere.
In one study, procurement departments that achieved high levels of compliance with their procurement processes spent 12% less on IT and telecom equipment, 19% less on human resources services and 20% less on general supplies and equipment.
Better visibility and reporting
The fewer suppliers you have, the more centralised your procurement processes can become. This can help to break down information silos and remove ‘blind spots’, making your financial reporting more accurate.
Having all of your financial data available in one place also makes it much easier to analyse. Complex analyses across multiple markets that would previously have taken a lot of manual aggregation and de-duplication can now be automated. This can provide you with more insight than ever on where you’re spending, where you could be saving and what steps you might want to take.
This data can also help you with more accurate forecasting through the use of predictive analytics, helping you plan for the future and look after the organisation’s bottom line.
Better purchase control and auditability
Modern eCommerce systems have made it much easier for managers, directors and procurement teams to track employee’s purchase behaviour.
Individual employees can be assigned accounts with contracted suppliers and these accounts can be monitored, keeping track of how much employees are spending, what they’re buying and who approved the purchases. Limits and thresholds can also be set, sending notifications to managers when certain amounts have been sent.
Purchases can also be monitored to make sure multiple departments or employees aren’t buying the same thing, helping reduce costs and avoid overstocking.
Consolidating your suppliers increases your buying power.
The fewer suppliers you have, the more you’re likely to spend with them and the more likely you are to be able to negotiate a deal. This may take the form of reduced costs or improved service.
Key customers tend to get preferential treatment and may even be assigned accounts handlers who can make things happen internally on your behalf. Perhaps most important of all, you’ll be able to tailor your negotiations to your exact needs and requirements.
Managing multiple suppliers takes time and creates a lot of work for procurement and finance teams.
Contacting their finance teams, researching their services, negotiating contracts, comparing prices, raising POs, making payments and querying invoices – these things take up a lot of time. If you have countless different suppliers to manage, that time multiplies. And every supplier might have a slightly different way of doing things.
The more consolidated your supply chain is, the less admin you have to do. Also, the more streamlined the process is likely to become, as you’re going to be repeating it more often.
It’s more sustainable
As organisations become more mindful of their impact on the environment and regulators apply more pressure through new legislation, supply chain transparency will become a priority. It’s likely that, in the future, organisations will have to be able to prove that they have taken steps to minimise their carbon footprint.
In recent years, multiple fashion brands and retailers have been rocked by supply chain ethics scandals. Consumers expect brands to behave ethically and supply chain visibility is a big part of this. Cutting costs through cheap labour or wasteful production processes can damage your brand and lose you customers.
We’ve already discussed how consolidation can improve visibility in terms of spending. It also increases visibility in terms of your environmental impact and helps establish an end-to-end view of your supply chain. The fewer suppliers have, the easier it becomes to monitor and understand your supply chain.
The world of work is more complex, fast-paced and interconnected than ever. But the simplest solutions still tend to be the most efficient and cost-effective. Reducing your partners down to a core group of trusted suppliers can help you reduce costs, improve visibility, manage the bottom line and be more sustainable.
Ricoh’s eShop gives you 24/7 access to a wide range of office, printer and IT supplies. It’s a one-stop-shop eCommerce solution that can help you spend smarter and save more. Each of your employees can be given individual accounts, so you can monitor their spending and control your monthly costs.
So if you’re looking to consolidate your office supplies and IT product provider to a single partner, check out the Ricoh eShop today.