5 Reasons why Strategic Procurement is Key to Ensuring the Longevity of your Business
Let’s take an example from this childhood business story. Imagine you are a kid and you decide to set up a summer lemonade stall in your residential community. It’s a great idea and you’ve got a fast-selling product on your hands. The weather is hot, everyone wants to have a drink and the biggest selling point for your business is a cute kid who is acting like an adult. As the lemonade seller, you’re simultaneously manning the sales and procurement departments. Your parents are your suppliers as they pick up the lemons from the market.
You’re selling to your neighbours, your friends and their family and money flows in. Business is good, but is your business model steady? One day, your parents get busy or their car breaks down and they can’t supply the lemons. So, what happens to your business? No lemons = No sales.
While the example may feel a tad too simple, it highlights the crucial importance of timely supply for the success of a manufacturing business. This was recently highlighted during the border shutdowns due to the pandemic. Several top manufacturers had to slow down production because of acute shortage of supplies. While there have been several discussions on supplier – relationship management, the majority of companies fail to have a clear understanding of the vital importance of procurement in the profitability and longevity of the business.
Your purchasing department – or the procurement team – defines the success of supply chain management.
The procurement department is responsible for identifying the needs of other departments, sourcing competitive prices and ensuring that all departments get access to their supplies in a timely manner and at the best prices.
Here are the top ways in which procurement helps in business longevity and profitability.
#1: Lowers Costs
This is the primary objective of the procurement department but is not the sole objective. A well-managed procurement department will help you reduce procurement costs by choosing the right suppliers who offer you the best prices and terms.
Additionally, the procurement team devises the right strategies to help you take advantage of warranties and discounts. It’s the responsibility of the procurement team to switch suppliers if the terms of the contract are not met.
#2: Reduce Risk and Ensure Continuity of Supplies
In an ideal world, there is no need to maintain safety stock because your supplier will provide you with the requested number of materials at the right time, always. But this guarantee seems impossible in the real world. There are plenty of factors beyond the control of the supplier. A recent example is the border closures due to the pandemic.
To overcome this situation, the procurement team will carry out a risk analysis to determine how much stock should be maintained, to avoid possible interruptions to supply. The less reliable the supply chain, riskier is it to depend on it and more safety stock is needed.
#3: Managing Supplier Relationships
Purchasing supplies for a manufacturing business is not a one-time task. It’s about building relationships with suppliers to ensure a win-win situation. The challenge of the procurement team is to get the supplier interested in a long-time relationship with your business and commit to a long-term contract.
The procurement team not only works with external suppliers, but also has to optimise relationships within your organisation. The team has to work in hand with other teams like finance, marketing, logistics and distribution to ensure that the internal goals of your organisation are aligned.
#4: Increase Quality
It’s not just about procuring supplies at the lowest price but ensuring that supplies are of high-quality. There are several factors to consider like durability, sustainability, look and feel of the supplies as well as timeliness of delivery.
#5: Leveraging Technology for Innovation
It’s the role of the procurement team to source innovative goods and products that provide a competitive edge to your business. The procurement team works closely with the R&D team to ensure that you commercialise innovative technology, giving you an advantage over your competitors. The team also keeps an eye on new technological solutions that help you address supply chain problems.
It all comes down to keeping your lemonade stand going – stable, reliable and profitable. Without lemons, you cannot quench people’s thirsts, and you miss out on the money going into your piggybank. When you strategize your procurement methodologies, you can keep your business running even if the situation is not favourable.
The bottom line here is that procurement ensures the reliability, resilience and longevity of your business. Without it, your business comes to a stand-still, irrespective of how many products you sell or how many customers you have.
To know more about our innovative procurement solutions, be sure to follow EuroIndustriel on social media or bookmark this page for other industry insights.
