Yield savings by auditing your procurement arrangements

You may be a private company seeking to maximise your competitive advantage, or a public sector organisation trying to stretch your funds further. For organisations of all stripes, auditing your supply arrangements can help identify cost and process efficiencies that will align your procurement with your wider business strategy.

However, busy procurement departments often lack the time to step back and assess whether they are still achieving best value from their suppliers. So, how can these teams check their purchasing continues to support their organisational goals?

Allowing a third party to audit your supply arrangements can identify opportunities for cost and process improvements – without distracting your procurement staff from their day jobs
 

The value of benchmarking

When selecting suppliers, procurement teams will often compare several quotes before making a choice. Yet, over time, these arrangements may cease to reflect best value. Ongoing benchmarking helps to check these prices remain competitive, so budgets continue to be used to maximum effect.

Comparing suppliers’ prices against leading competitors can provide a basis for cost improvement. Meanwhile, organisations seeking true value can go beyond a simple cost comparison. A deeper audit may identify new capabilities in the marketplace or streamlined ways of working – creating a persuasive case for change. In turn, these changes may enhance business performance, impacting the company’s bottom line.

However, due to time constraints, limited resources and changing priorities, procurement teams can struggle to identify and realise these savings opportunities.

When selecting suppliers, procurement teams will often compare several quotes before making a choice. Yet, over time, these arrangements may cease to reflect best value. Ongoing benchmarking helps to check these prices remain competitive, so budgets continue to be used to maximum effect.

Comparing suppliers’ prices against leading competitors can provide a basis for cost improvement. Meanwhile, organisations seeking true value can go beyond a simple cost comparison. A deeper audit may identify new capabilities in the marketplace or streamlined ways of working – creating a persuasive case for change. In turn, these changes may enhance business performance, impacting the company’s bottom line.

However, due to time constraints, limited resources and changing priorities, procurement teams can struggle to identify and realise these savings opportunities.

Audit options

A full audit of your purchasing arrangements will review your company’s current buying patterns, supply chain, invoicing and operational procedures, as well as the actual products being purchased. This can reveal cost and process inefficiencies which can be addressed to achieve savings. Organisations seeking to undergo this kind of audit have several options to choose from:

1. Internal review – You may wish to review your processes and test the market yourself. However, this will require you to commit time and resource to sourcing quotes, comparing pricing models and performing supplier due diligence. Your procurement staff will have a deep understanding of your supply arrangements, equipping them to perform such a task. However, if they are ensconced in day-to-day work, a thorough assessment may be challenging.
2. Cost consultants – Organisations unable to commit internal resource to a supply chain review could offload the work to a Cost Consultant. These independent individuals are often experienced in specific categories and have established relationships with key players in those markets, which they can use to provide an accurate benchmark of your existing supply arrangements. However, their consultancy fees will eat into any savings garnered.
3. Supplier audit – Another option is to approach a supplier to audit your spend in the categories they offer. Some suppliers will carry out a free, no-obligation audit. This gives you the best of both worlds: a free benchmarking service performed by knowledgeable industry experts. Their category knowledge means they will know exactly where savings can be made. Meanwhile, the supplier will undoubtedly present savings in the hope you will switch to their products or services. So, this route can lead to leaner pricing. When conducting an audit, a supplier will typically request details of your historic purchases and use this to identify areas where savings can be achieved. They will then present their findings back to you in a proposal for your organisation to consider.

Types of saving

If your supply arrangements are audited by someone with knowledge of the categories under review, they will understand the levers which can be altered to free up funds. The key types of savings such an audit can yield include:
Line item savings – Savings achieved by providing the same product or service at a lower price
Better value alternatives – Switching items for cheaper alternatives which share the same functionality at a lower cost
Rationalisation – Identifying multiple purchases which share similar functionality and selecting one to replace all of them, achieving volume-based savings
Reduced purchasing costs – Landed costs such as handling, postage and packaging charges can often by streamlined following an audit – for instance by purchasing similar products from a single provider can de-duplicate delivery charges
‘Soft cost’ savings – Indirect savings generated through process efficiencies which free up time and/or resource – for instance, eliminating manual processes and unnecessary administration

Ready for your audit

We have consultants on hand who specialise in auditing companies’ costs and expenditure to identify ways to improve profitability.

Let us do the hard work for you with our free no-obligation audit service, whereby our consultants will review your purchasing arrangements across the full range of indirect services and commodities – and feedback the savings you could achieve.

Contact us now to hear more.

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