Strategic procurement technologies that enhances the performance of the enterprise

E-sourcing platforms allow managers to enhance the effectiveness and efficiency of their enterprises. The statistics demonstrate that the convenient use of the e-sourcing platform reduces the initial price by 15-50%. But that is definitely not enough. If we compare the purchase cost not with the initial price of the items, but with the price of these items in retail stores (including online stores) the statistics would not be so brilliant.

Purchasing Management Trends

Nowadays, it is a common situation when enterprises are moving to strategic procurement and product category management, bypassing the stage of implementing the supplier relationship management (SRM) approach. The supplier relationship management approach is an integral part of the strategic procurement, but the penetration of the SRM into the business processes of the enterprises is much deeper. Recently, the number of SRM system adopters has been steadily increasing.

What is the reason for such a tendency? This tendency is interconnected with the need to enhance the effectiveness and efficiency of the enterprise that was mentioned earlier. When the production capacities are overloaded, and unemployment is at a relatively low level, there stems the consecutive growth of wages. At the same time, other costs reduce the competitiveness of the enterprise. One of the most convenient ways for an enterprise to survive and increase its profitability is to enhance efficiency and effectiveness.

How to enhance efficiency and effectiveness?

To enhance the efficiency and effectiveness of an enterprise, it is necessary to efficiently acquire input resources (materials, components, energy, services, etc.) and add value. The purchases at e-sourcing platforms in many cases can reduce the cost of the input resources. But is it possible to efficiently acquire resources from unsustainable suppliers? SRM approach, along with the strategic purchasing should be implemented at this point.

Prequalification and selection of suppliers

First of all, the purchasing manager should develop a pool of sustainable suppliers for each key product group. The purchaser usually develops this pool through continuous supplier prequalification activities. A manager should form an individual list of qualification criteria for each key product group. A preliminary selection of the suppliers should be performed based on the supplier’s responses to questionnaires. In a framework of the supplier preliminary selection, the purchasing manager gets acquainted with the business structure of the potential suppliers and their sustainability. At the same time, the purchaser discovers not only the capabilities of the supplier to provide the necessary items with the necessary quality and volumes but also the possibility of increasing the performance of this supplier in the future.

Ways to Improve Supplier Efficiency

The most affordable way for the purchaser to improve the supplier’s efficiency is to reduce the costs for participation in the sourcing events. For example, there is no need to obligate the supplier to provide paper copies of certain documents. The convenient e-sourcing platform provides capabilities to conduct the entire document flow in electronic form. Also, there is no need to obligate the supplier to provide publicly available information from the supplier because such information can be extracted from state registers. Usually, it makes no sense to conduct too complicated sourcing events, with a number of additional stages because the supplier may simply include a higher margin in the initial offer and as a result of complex sourcing with numerous additional stages the price may not be better than if there was conducted an ordinary sourcing event.

It is not necessary to implement bid security or lot deposit because such security measure affects the supplier’s financial resources. Such circumstances force the supplier to increase the cost of delivery. At the same time losing a reliable customer will much more tremendously affect the business of sustainable suppliers than the loss of deposit.

Integration with information systems of the suppliers, automation of contract management as well as accounting will also enhance the supplier’s efficiency. And most importantly, the sustainable supplier should be provided with an opportunity to win the competition. Sustainable suppliers will not be endlessly engaged in your sourcing events just to guarantee the competition. One moment, the sustainable supplier will simply find new customers. And then your favorite supplier will definitely take advantage of his sustainability while participating in the new customer’s sourcing activities.

There are many other ways to enhance the supplier’s performance, starting from helping the supplier to develop the product line, and ending with helping the supplier to expand the customer database, and even investing into his business.

Purchasing routine optimization

Value creation is inseparable from the efficiency of procurement activities. First of all, it is necessary to increase labor productivity. This requires the use of modern technologies, which are interconnected with the purchasing of equipment and investments.

It is also necessary to minimize the participation of employees in routine operations, including in the field of procurement. Let’s review an example of procurement optimization that is typically out of the purchasing department’s scope of work. For example, automating the collection of purchasing requirements can relieve a lot of the procurement department’s time, while consolidation of the purchases can provide significant financial savings due to volume discounts.

Another huge opportunity to reduce the costs is to optimize the purchasing of office supplies and other small things. We are talking about those items, the cost of which is smaller than the cost of their acquisition. There are a number of ways to solve this problem, starting from complete outsourcing of this function, and ending with the implementation of the instant ordering system that would be available at all levels of the production hierarchy (every employee or, at least, every head of the department).

Thus, procurement activities are interconnected with all processes of the enterprise, and its automation can bring a wide range of benefits to the company. Strategic sourcing solutions provide the capabilities to take the enterprise to a new level. Implementation of such solutions will significantly enhance the efficiency and effectiveness of the enterprise.