Finding value in manufacturing procurement

September 28, 2018

Most companies look to their procurement departments to help keep the cost down while maintaining optimal results. This is especially important for small businesses, where even the smallest overspend can spell disaster for the entire organization. If you’re running a manufacturing business, things might not be as simple. After all, the bulk of your process depends on your inventory – machinery, supplies, and raw materials. If you suddenly started randomly cutting costs to save money, it could result in an inferior end product, which would then lead to a loss of profits. Thankfully, this problem is easy to overcome with good procurement practices.

Focus on the value, not the cost

Before you start cutting your spending, you must understand the difference between value and cost. Namely, just because something is expensive doesn’t mean that it will be valuable to your manufacturing process or your final product.

For example, if you’re paying premium prices for certain supplies only to end up wasting more than half of them, that’s not a good practice. Even if you managed to get incredibly low prices on said supplies but continued to throw most of them out, you would still be wasting your company’s precious resources.

To know where to cut costs, you need to determine how each item in your inventory impacts the value of your product. If paying more for high-quality raw materials allows you to charge more for the product, that’s something you should keep doing. However, if you are certain that switching to a cheaper material won’t affect the market value or the quality of your product, it’s only logical that you should go for it.

Keep your procurement department in the loop

As the market evolves, the demand for certain products starts to wane. Manufacturing companies launch new products and discontinue old ones all the time, but if you fail to inform your procurement department of these changes, it could result in more wasteful spending that could hurt your business.

If you’re introducing new or updating existing products, your CPO needs to know so that they can order all the necessary raw materials and supplies in a timely manner. If, on the other hand, you have decided to gradually phase out a certain product, the CPO should start reducing the order of raw materials for that product. This ensures that all your investments are bringing value for the company.

Automate your procurement process

With more and more businesses taking their operations digital, those that fail to do it on time will have a problem keeping up. Automating your procurement process will not only help you stay competitive but it will also help you keep your purchasing costs down while maintaining the quality of your final product.

Automated procurement helps you diversify your suppliers to make sure that you’re getting the best deal possible. What’s more, you can reach out to multiple suppliers at once with automated Requests for Quote. The ability to track your tail spend ensures that every single dollar you invest is accounted for and easily traceable. Tail spend is not inconsequential as it makes up 20% of the average company’s overall annual procurement spend. Automating this process ensures that all your contracts, quotes, and other important information are just a few clicks away whenever you need to access them.

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