Nearly 65% of procurement leaders indicate that controlling costs within the procurement cycle is one of their most critical priorities. Beyond that, they're looking to provide savings and value in a way that goes beyond just improving the bottom line.
Sourcing has become the backbone of organizations around the world, notably reaching across the aisle to partner with other functions in ways that have helped entire businesses become successful. Industry leaders are on a mission to streamline the purchasing process, remove bottlenecks, improve relationships, realign itself with the organization’s goals, and celebrate it’s successes along the way.
How can it all be accomplished? Below we're highlighting ten ways practitioners can improve the procurement process and cut down on the amount of time it takes to source what you need. We'll cover ways to make the entire process more efficient, including how partnering with a group purchasing organization can bring your sourcing game to the next level.
The Procurement Process
The process of sourcing and procuring goods and services is very involved. There are a lot of moving parts and steps that procurement professionals have to complete in order to be successful. It’s time consuming and daunting, especially considering the process must usually be followed for each purchase in each category.
The typical procurement cycle consists of about ten steps, including everything from determining business needs and completing market analysis to finding and vetting suppliers, negotiating contracts, and submitting purchase orders.
Added to the mix is the time that goes into the RFx process to ensure you’re getting a good deal and the effort it takes to nurture your supplier relationships to help guarantee quality service.
Direct vs Indirect Spend
When it comes to a company’s direct spend, we understand there may be times when you simply cannot skim over certain steps within the procurement process. These raw materials, components, and services, which could account for up to 80% of your total spend, are crucial for producing your end product and delivering it to your consumers.
Honoring the process takes time but it makes sense for this spend to be heavily monitored with energy put into establishing key relationships with the top 10-20% of suppliers.
But what about the other 20% of spend? At first thought, 20% doesn’t seem like much but depending on the size of your organization, it could still add up to be millions of dollars of indirect spend left unmanaged. Not to mention, the bulk of your supplier relationships live within your indirect spend categories.
If the relationship is treated as purely transactional and without regular contact or check ins, you’re missing out on the chance to work with nimble, responsive and innovative suppliers.
The Importance of Managing Indirect Spend
Indirect spend is beset with problems including fragmented spend across multiple categories, data scattered across siloed databases, a lack of centralized control, and ever-present maverick spend. The smaller expenditures that constitute a company’s indirect or tail spend can add up quickly, though, and it’s worth noting that there is a lot of underlying value to be found in these categories.
According to a report by McKinsey, managing indirect spend has the potential to cut product and service costs between 10 and 25%, reduce manual workloads by 30 to 50%, and slash time-to-market by 30 to 40%. Those potential cost savings are significant and the risk associated with leaving indirect spend unmanaged is getting harder to justify. Direct suppliers are often subjected to weeks of due diligence, credit and legal checks, and ongoing monitoring in an effort to reduce risk.
When the same care is not given to indirect categories and nonstrategic partners, it leaves organizations open to ethical and compliance risks, potential cyber security attacks, operational risks, and damage to their reputation.
How to Improve the Procurement Process
Recent data collected from current Una members indicates that one of the main pain points procurement professionals are experiencing is the length of time it takes to realize cost savings.
This is especially true when it comes to indirect spend categories like shipping, office supplies, and facilities maintenance, where they’re finding it harder to negotiate fair prices on their own, or lack the category knowledge to manage the segment of spend effectively.
The drawn-out procurement process, coupled with a severe lack of resources when it came to staffing and category knowledge, left nearly 60% of respondents feeling the pressure to deliver cost savings and value in a timely manner.
Luckily, there are ways to improve steps within the procurement cycle that cut down on the amount of time it takes to source goods and services, elevates procurement efficiency, and increases your speed to savings.
Download this complete playbook on how to improve the procurement process and increase procurement efficiency:
Step 1. Determining Business Needs
The procurement cycle begins at the point when you realize your organization needs to procure something from an external supplier. It’s important to understand your budget constraints, the overall objectives of your business, and the priorities of individual departments.
How to Improve
Clearly defining these needs will enable your team to make better and more informed buying decisions and drive cost efficiencies throughout your organization. Seek guidance and input from cross-functional internal stakeholders to provide you with useful information regarding your organization’s needs, and engage with subject-matter experts who can ensure compliance and buy-in later on.
Step 2: Complete a Market Analysis
Completing a thorough market analysis will ensure you and your team have a robust understanding of the options available to you – ultimately enabling you to compile a list of prospective suppliers. Take costs, key players, challenges and dynamics, alongside how the market is evolving into consideration.
How to Improve
For small procurement teams or those short on resources, look into outsourcing this task to a third-party service provider like a syndicated intelligence provider or group purchasing organization. GPOs can save you weeks of effort by leveraging their own intelligence sources to gather all the data needed to make an educated decision on the best suppliers.
Step 3. Compile a List of Suppliers
With your market summary in hand from step two, you will be equipped with all the information you need to put together a list of suitable suppliers.
How to Improve
Make sure you are shortlisting vendors with your top priorities in mind, be it driving innovation and sustainability throughout the supply chain, sourcing locally, efficiency, cost reduction, or fostering a close working relationship with your supplier.
Step 4. Produce Tender Documents
You’ll need to provide your shortlisted suppliers with detailed specifications, outlining your budget, volume requirements, time scales, service level agreement, and terms and conditions.
How to Improve
Your documents should distinguish between your specific requirements and personal preferences. Involve key stakeholders at this stage to cut down on the amount of back-and-forth needed to get the documents ready for submission.
Step 5. Issue RFI, RFQ, or RFP
Depending on the complexity of your procurement process, you may wish to issue a request for information (RFI), request for quote (RFQ), or request for proposal (RFP) to your shortlisted suppliers.
How to Improve
Ah yes, the dreaded RFx process! This step is lengthy and time-consuming, but often necessary when it comes to big strategic purchases. When sourcing for indirect procurement needs, though, think about ditching the RFP process altogether by joining a GPO like Una.
GPOs already have established relationships with top suppliers and leverage the buying power of their members to negotiate the best prices. You won’t need to submit an RFP because your GPO membership automatically grants you access to the best pricing available.
Step 6. Negotiate and Award the Contract
At this stage, it’s essential to negotiate contract terms that serve both parties as this will ensure you can embark on a long and healthy partnership. Your contract should address factors including costs, terms and conditions, key deliverables, break clauses, and KPIs.
How to Improve
Review similar contracts your organization has signed with suppliers in the past to get a better idea of what you need to include, what’s been working well, and where you can reduce costs and drive efficiencies. This is also a great way to learn from former mistakes and eliminate unrealistic contract terms.
Step 7. Finalize Purchase Order
The purchase order should include a breakdown of the final details including a description of the goods and services you are buying, volume requirements, time frames, and costs. Once approved by your organization’s financial team, the purchase order will be issued to the supplier to fulfill the order and issue an invoice.
How to Improve
“Measure twice and cut once.” This saying comes in handy here as purchase orders serve as legal documentation. Double-check that the specifics of your agreement are outlined clearly to ensure both parties are protected.
Step 8. Process Payment
Your supplier will provide you with an invoice that details the agreed-upon price and how you are required to pay them.
How to Improve
Pay close attention to the supplier’s payment terms so you can be sure to pay them on time. Take advantage of payment technology to automate this process so you’re not chasing down checks from accounts payable.
Step 9. Audit Order
All being well, your chosen supplier will deliver your goods or services as specified and within the required time frame. Keep a record of when your order arrives and check its contents. Make a note of any issues, whether it’s shipping delays, poor product quality, or incorrect inventory so you can quickly rectify these with your supplier or reference them when it comes to reviewing or renewing a contract.
How to Improve
Organization is key. Keep records of all of the documents associated with your purchase, including contracts, invoices, order audits, etc. This will help you to accurately manage your procurement budget, analyze your organization’s spending, and make improvements in the future.
Step 10. Review Contract Performance
Continually review and revise your contracts to ensure your procurement team is extracting maximum value from them and hitting objectives. Your supplier KPIs, workflow, and key deliverables will help you to evaluate your progress and measure the success of your supplier partnerships.
How to Improve
Maintain regular communication with your suppliers and provide opportunities for them, and your internal stakeholders, to give feedback. Schedule review dates with your vendor, during which you can review feedback and discuss changing expectations and requirements to make any necessary amendments to your contracts.
How to Increase Procurement Efficiency
Hashing out each step of the procurement process seems cumbersome but making small changes here and there can make a big difference in how much time you’re spending trying to find the things you need to successfully run a business.
Having the right conversations (with the right people at the right times) and investing in technology where appropriate is bound to simplify the purchasing cycle for you and your team.
our efficiencies can also be brought to the next level by joining a GPO and taking advantage of the power of group purchasing.
Download this complete playbook on how to improve the procurement process and increase procurement efficiency:
How Do GPOs Work?
Group purchasing organizations, sometimes loosely referred to as a buying group, leverage the collective buying power of their members to obtain volume discounts from suppliers. Once you join a GPO, you’re able to take advantage of pre-negotiated contracts and receive discounted pricing on the goods and services needed to run your business, saving you money, time, and effort.
Typically, GPOs are used when a company is lacking buying power, has fast-approaching timelines, limited procurement staff, or all of the above. When employed properly, a GPO can be an efficient sourcing tool that delivers more than just cost savings.
The best GPOs will play a supportive role in your comprehensive procurement plan, complementing your sourcing strategies, not replacing them. Better yet, most GPOs are free to join.
The beauty of the GPO model is that because of their members’ purchasing volume, compensation comes from the suppliers themselves, not the members.
How Do GPOs Work to Improve the Procurement Process and Boost Efficiency?
Working with a group purchasing organization instantly provides your organization with the means to save money, time, and effort in a number of ways:
- The GPO is an extension of your procurement team
- GPOs eliminate the need to search for suppliers
- GPOs allow you to skip the negotiation process
- A GPO can provide cost analyses
- GPOs offer seamless and repeatable experiences
1. GPOs Act Like an Extension of Your Procurement Team
The U.S. is currently experiencing an unprecedented jobs crisis. Catalyzed by the pandemic and exacerbated by the Great Resignation, recruitment is taking longer and costing more in a candidate-driven market. Partnering with a group purchasing organization can save your organization weeks of search-time and thousands in hiring costs as a GPO acts like a virtual extension of your procurement team, instantly increasing the number of resources available to you when you join.
In practice, this means you can give a GPO like Una tasks such as bringing your tail spend under management, seeking advice from our sourcing experts based on sophisticated spend analytics, and asking questions to help accomplish your goals.
2. GPOs Eliminate the Need to Search for Suppliers
According to McKinsey, a single supplier search can take around three months, with a sourcing professional “logging more than 40 hours of work” through the RFP process. Search times can vary wildly between businesses, and are (as a rule) longer in government procurement.
But for common, indirect categories such as corporate services, office supplies, shipping and logistics, facilities maintenance, and food distribution, there’s a much more efficient way. Working with a GPO means finding and vetting suppliers is already done, saving your team potentially months of work.
3. GPOs Allow You to Skip the Negotiation
After spending multiple weeks searching for and vetting suppliers, procurement professionals face another time-consuming hurdle – the negotiation process. Depending on how the negotiation is conducted, this can involve multiple days of back-and-forth proposals and counter-proposals until a compromise is found.
At Una, we have thousands of pre-negotiated contracts in place which means there’s a good chance we have a working relationship with the supplier you’re looking for. This will allow your organization to start saving money within weeks, not months.
4. GPOs Provide Cost Analyses
As an extension of your procurement team, a GPO like Una can help you skip the RFP process and see savings based on real data and real contract terms. It works by first getting a picture of your current spend, then seeing what you could be saving by using one or more of our pre-negotiated contracts.
5. GPOs Provide Seamless and Repeatable Processes
Una offers an attentive and efficient end-to-end member experience and ongoing support for future needs. Once you’ve been onboarded in our system and have experienced the power of group purchasing for the first time, we can simply “rinse and repeat” for additional categories.
Getting Started with a GPO
One of the biggest misconceptions surrounding group purchasing organizations is that the GPO is there to replace a company’s procurement function. This is simply not true. As an outsourced spend solution, a GPO helps procurement expand the scope of its control and enhances its relevance to the organization.
Una acts like a sourcing accelerator and can essentially help procurement professionals get out of their own way. As part of our discovery, we complete a comprehensive spend analysis, identify areas to tackle first, and then strategize to further complement your overall procurement strategy, all with the goal of helping your business become more profitable.
GPOs alone don’t provide a comprehensive procurement outsourcing strategy. Rather, a GPO focuses on driving value across a broad set of categories that can have a meaningful impact for a large number of participants.
Partnering with a GPO not only generates hard-dollar savings in the selected categories but also enables corporate procurement to redirect freed-up resources to focus on other, more strategic areas.
The Una Difference
Una is on a mission to increase your organization’s profitability quickly using our group purchasing platform. Our sourcing advisors and member experience team are passionate about helping procurement and business leaders save money, time, and effort.
When you decide to work with Una, you’re choosing a partner in procurement. Our process, which consists of a discovery call to define success, cost analyses to identify savings opportunities, and introductions to top suppliers, is fast and seamless, and can be applied to almost any category of spend.
Roughly half of Una members are able to get connected to an initial contract and start saving within a month’s time. Additionally, Una members are saving an average of 15-20% in select indirect spend categories.
Una membership, and the benefits that come along with it, is completely free of charge. There are never any purchasing requirements and you’re never locked into contracts.
We provide an “in” so every organization can save big on the items they need, and follow up with resources that improve the sourcing process, increase procurement efficiency and effectiveness, and deliver comprehensive savings solutions.
Ready to improve the procurement process and boost efficiency? Contact us to get started today!
