A 2014 Deloitte survey found that 69 percent of chief procurement officers saw cost reduction as their main priority over the following 12 months. In 2018, the same survey showed that the number had jumped to 78 percent – a 9-percent increase in just four years.
The ability to understand spending, set savings goals and manage sourcing to reach those goals is becoming essential. To get there, organizations are moving to a new generation of sourcing platforms to fundamentally change the way procurement organizations operate. Investing in a solution that streamlines and expands sourcing processes enables critical changes and new approaches, including dynamic negotiations, accurate analytics, reverse auctions and new levels of transparency and collaboration. These changes result planned, targeted cost savings and other strategic benefits.
Here are a few ways that strategic solutions can help procurement teams add greater impact to the enterprise as a whole.
Transparency helps identify cost-reduction opportunities. Making informed decisions about risk and cost-saving opportunities is nearly impossible for procurement teams without a simple, streamlined and shared view into supplier relationships, contracts and obligations. Clunky, manual and legacy contract tools are extending the process time and reducing the competitive edge and cost-savings opportunities. With legacy tools, the connections between suppliers, obligations and documents are difficult to find, much less manage and optimize.
In contrast, solutions that allow teams to collaborate and have real-time visibility over all supplier activities can provide a simple and efficient way for sourcing leaders and contract managers to have a 360-degree view of the supplier relationship. Additionally, sourcing professionals gain a seamless and effective way to manage contracts for their business stakeholders, as well as provide ongoing end-to-end visibility.
When legal, stakeholders, suppliers and vendors have full transparency, procurement teams can drive to a more streamlined end-to-end process, because all parties have the information that they need, when they need it. Teams can prioritize and track progress through every stage, and ultimately predict successful business outcomes. In turn, this level of transparency reduces costs for companies, because they can find more cost-cutting opportunities and close communication loops more quickly.
Savings through reverse auctions and dynamic negotiations. Newer approaches, such as reverse auctions and dynamic negotiations, make a bottom-line impact across the enterprise. They provide new means of purchasing, particularly for volume and ongoing regular procurements. Both methods have been notoriously difficult in the past, but new platforms can simplify processes and put them into the hands of most sourcing organizations. These solutions can enable the right balance between price, quality and other important factors. According to a 2017 Scout RFP survey, enterprises that successfully run reverse auctions prioritize high quality for a good price, rather than automatically awarding to the lowest bidder.
When reverse auction and dynamic negotiations are integral parts of a sourcing platform rather than standalone tools, they not only maximize cost savings, but help advance supplier relationships, since pricing and negotiations can be done in the context of historical experience and additionally identified opportunities for adding value. Buyers and suppliers have the visibility they need to run a successful and equitable auction; suppliers have a clear insight into the requirements, and buyers can undertake due diligence on the auctions, seamlessly connecting the dots for all parties involved. Enterprises that use a reverse auction strategy save between 10-20 percent in their purchasing process. One global retail company saved nearly $400,000 in a 30-minute commodity auction, because it was able to expedite negotiations.
Collaboration across all parties. Collaboration is key standard procurement events as well as more advanced forms, such as those using reverse auction. It ensures accuracy and efficiency, and even unites stakeholders together into a virtual group that is working to achieve the best outcome. Questions and issues can be answered quickly, eliminating much of the start/stop issues common to traditional procurement.
If your enterprise is using a sourcing platform that doesn’t allow collaboration across all parties, it’s time to reconsider the tools you are using. Collaboration across business stakeholders is critical to a successful procurement process that can obtain cost savings goals and meet the requirements of internal customers. Without collaboration, sourcing can become onerous and a constant irritation for all involved. It often results in missing some important element or producing less-than-ideal results.
Collaboration allows business stakeholders to be part of the entire process. Business stakeholders are more invested, feel valued and become contributors instead of mere spectators to the process. The result is greater communication across the enterprise, ultimately benefiting the overall cash position and business impact of the project.
A recent study of procurement leaders around the world revealed that they expect a 40-percent increase in annual savings with automated procurement solutions. With these key strategies top of mind and the proper solutions in place, procurement teams will have a greater impact on the entire enterprise, leading to success for all parties involved and a measurable impact year-over-year.
The combination of transparency, newer sourcing practices such as reverse auction and dynamic negotiations, and full collaboration betweeen the procurement team and all business stakeholders, creates an environment conducive to driving significant change. Supported and enhanced by a new generation of sourcing platform, it enables cost savings that lead directly to bottom-line impact. At the same time, savings must not come at the expense of other key considerations. Risks and compromises should be clarified and considered collaboratively. Other factors, too, such as quality, speed and additional value-add need to be considered. With all these qualities, a new kind of sourcing can emerge that will add to the success and longevity of the enterprise.
Stan Garber is president and co-founder of Scout RFP, a provider of sourcing and procurement software.