Running a successful business is stressful. Very stressful, in fact. Arguably the biggest challenge facing chief procurement officers and procurement managers is cashflow. Ensuring that you have the right stock levels without sacrificing pricing, or incurring wastage, will go a long way in alleviating month-end pressure. Open communication between the procurement- and finance departments will more than likely prevent crises of oversupply.
In this month’s SmartProcurement, Ian Hendry – Corporate Card Product Manager at Nedbank Corporate Card – explores five ways to help you streamline your procurement process, and improve your procurement function.
1 Build long-term supplier relationships
Suppliers are often the bane of the procurement manager’s life. There are so many factors to consider- including price, service, efficiency and reliability. Don’t underestimate the importance of delivering goods or services that are on time, within budget and – most critically- of a respectable quality.
While it is always important to get multiple quotes – especially in the financial services or corporate banking sector, that mandates a minimum of three quotes – always ensure that once you have established a good relationship with a reliable supplier, you maintain the relationship. Critics might say this breeds complacency, but it will foremost alleviate contractual headaches, and ensure a certain level of consistency.
2 Prioritise inventory management
No one enjoys conducting a stocktake – not a first-year audit clerk or the head of procurement. The exercise is laborious and its importance is often overlooked. The advice? Ensure that your team is experienced in inventory management, and is supervised by a leader who has a keen attention to detail and accuracy.
Perhaps look at investing in advanced inventory management system software to monitor and manage your inventory, and ensure that the system is integrated with your financial accounts system. The key objective is to optimise cash flow and mitigate risk.
3 Strategic procurement
Some might interpret this simply to mean ‘group buying’, but it is far more encompassing than this. Meet regularly with your fellow heads of department and ask them what they require in bulk – be it delivery vehicles, heavy-duty stationery, corporate clothing or food and beverage sundries – and identify suppliers accordingly. If you are importing on a large scale, partner with the best trade finance, freight and logistic experts.
Price is certainly an important factor, but procurement should be strategic from the outset. Incorporate your procurement partners from the outset, involve them in internal team discussions and ensure they are well-prepared in terms of operational, maintenance, health and safety, as well as quality assurance risks. Don’t treat them solely as project-based suppliers, but rather as strategic assets to your corporation who are jointly responsible for your company’s financial wellbeing.
4 Tighten controls and centralise
There is a dangerous tendency – particularly in larger corporates – for procurement to be a sprawling function that is decentralised throughout the organisation, and not held as tightly at the centre as other group functions such as finance, human resources or marketing. A centralised procurement function can create efficiencies and economies of scale, and will almost certainly ensure that decisions are made more quickly.
Tightened controls resulting from a centralised procurement function will allow greater bargaining power, and can empower the procurement professionals to ensure that suppliers are onboarded faster, contract templates with terms are predefined, and that signoffs are attained more efficiently. Further benefits to the centralised approach include reduced duplication of administrative work, increased efficiencies associated with centralised recordkeeping, and potential discounts from high-volume purchasing.
5 Formulate and adhere to a procurement policy
Service level agreements, user policies, operating policies and terms of employment are all standard binding business documents used to monitor and control performance, and mitigate risk. Why should procurement be any different?
It is critical to professionalise the procurement function, and ensure that there are delegations of authority in place to hold your procurement officers accountable for the decisions they make. Define the terms of your policy – perhaps attain three or four quotes from prospective suppliers, ensure these contracts have been vetted and approved by the inhouse legal team, and create yardsticks to evaluate both supplier and staff performance. If these have been finalised and made available to all parties, it will incentivise strong performance and can foster loyalty.
Another key benefit is the near-guaranteed quality control. A strong procurement policy will determine the minimum required criteria to become a supplier, for example track record, financial position, operational history and performance. By streamlining your procurement process, you will likely see organisational benefits you’re your operations down to the bottom line. Initially it may seem overwhelming to implement these changes, but ultimately the cost, and operational efficiencies will make it all worthwhile.
Contact Ian Hendry on IanHe@nedbank.co.za.