(BiddingEngine.Com Knowledge Series : Part 1)
In current economic turmoil organizations are looking at opportunities to improve financial results with year-on-year growth and for profit recovery it becomes imperative for organizations to think out of the box to improve bottom line.
Businesses have realized the easiest route to bring positive impact on balance sheet is to bring cost reductions. Certain cost reduction strategies that not only impact top line growth but also provide with new avenues and create differentiating factors.
Identifying Cost Reduction Areas
The organization need to take some steps to identify, design and implement the cost reduction measures in areas of
- Overstaffing when it is far from the optimal size
- Unorganized Services and business support structures which are spread in different directions tend to create operation silos resulting duplicity and inefficiency
- Unstructured Purchase Process, mostly in the area of approval and selection of supplier, generates chaos, which leads to wastage of resources
Managing Costs at Supply Level
In supply management the procurement of services has come under great scrutiny and there has been tremendous pressure on Chief Procurement Officer to help organization to tap the power of supply side for bringing flexibility and innovation, and supporting the business in an environment of high risk and volatility with least minimum available resources.
Procurement office has to answer key questions,
- How can the supply function contributes effectively to organizational objectives?
- How to ensure that the supply contributes effectively to organizational objectives?
In this scenario it becomes important to map supply and organization objectives and strategies very clearly as supply strategy links current and future markets to current and future needs.
Relationships between Supplier & Organization
As the relationship between supplier and organization is constantly evolving it’s on the agenda of CPO to assist the organization to tap the power of supply side to manage flexibility and innovation, and supporting the business during the turbulent times. It becomes a matter of survival for organizations to bring efficiency to their cost and operating structure.
The procurement office is busy fire fighting and has to come up with innovative solutions to address problems arising in current business environment, like:
- Volatility of key economic indicators
- Emerging Markets
- Pressure to Innovate
It becomes important for organization to streamline their business structure to become more predictive in areas of business strategy and operational execution.
In such a scenario the procurement process needs to be geared to
- Adapt to changing environment and anticipate changes
- Utilization of talent pool by cross skilling and up skilling
- Enhancing procurement processes
- Bring flexibility so that it can be molded to external changes
- To curtail and manage cost
Understanding Cracks within Organization
At times organizations fail to track organization wide buying trend as the teams work in silos and in disparate systems. Organizations should take leverage of their buying power as with larger spend organization get better negotiated deals
By working with the empanelled suppliers for each specific category companies can gain advantage and bring down cost significantly and also make track organization wide spend more effectively. It has been seen employees tend to give more weight to convenience over price, and ready to opt for suppliers which can fast but at higher price. If organizations can make buying process easier and through approved suppliers at pr-negotiated prices company can gain in terms of discounts and rebates.
In many organization approvals tend to be a formality which cannot be later tracked. It is required, to meet compliance requirements procurement related transactions should be routed through automated customized approval workflows.
Automation of procurement process can help in curbing delays and errors. At times, in manual processes, it becomes difficult to maintain currency related to invoicing and purchase orders.
Unstructured and manual processes not only delays the procurement process but also lead to information leakage which only results in risk prone decisions and creation of clutter. Moreover inefficient procurement processes leads to cost overruns, low employee satisfaction and increased chances of litigation.