The procurement department is a very important part of every organisation. The purchase costs form the basis for the profit margin on the selling price. The purchase costs are usually a fixed price within the set of costs and are therefore often regarded as fixed costs. Because they are seen as fixed costs, people often do not think about reducing these costs, because it’s a given. Yet in most organizations it is easy to shave off a few percent of the purchasing costs. By reducing the cost price of the product, you can either lower your selling price or increase your profit margin. These are two goals that every for-profit organization should pursue at all times. Because of this importance, we’ll give you some tips that can help you reduce your purchasing costs.
Indirect procurement costs
Indirect procurement expenses are a major cost within most organizations that deal with procurement costs. Because these costs are made indirectly, the losses that these costs cause are not immediately visible. These are costs that only come to light when a more efficient solution has been found. Think of bundling purchasing parties. If your organization regularly purchases 20 products from 15 different parties, then you incur a part of purchasing costs for each additional party in this process. When you can purchase all these 20 products from 1 party, you minimize the indirect purchasing costs! These costs only come to light as soon as you can purchase all products from 1 party and that’s why they’re very hard to find.
Automate the process of purchasing
The more the purchasing process is automated, the cheaper the process will become. This may not manifest itself immediately, because automating the process also costs money. In the long run, however, automating the purchasing process will pay off enormously. The purchasing costs themselves may decrease somewhat in percentage terms, but most of the profit will be made on the costs incurred in the purchasing process. The number of man hours will decrease sharply and with it the cost basis of your purchase. The longer you use the automated process in your organization, the higher the cost savings will be in the long run! This cost reduction is the main reason we can advise every organisation to look into these forms of E-procurement!