Procurement Best Practices
Incorporate These Approaches to Optimize Your Results
David Daffner, Vice President — Managed Services
We’re all under pressure to contain costs and generate results — usually while facing some pretty serious obstacles. The ultimate goal? Streamline operations, increase productivity and improve profitability. That’s no small feat. Simply maintaining status quo isn’t enough. You need to transform your approach to managed services procurement. Incorporate these five best practices into your business to get results.
Take a company-wide team approach to procurement.
Create a procurement committee or supply chain counsel that includes executive stakeholders and representatives from key departments. This group should provide governance and direction to ensure that overarching corporate strategy is aligned throughout the organization. It’s critical to provide consistent cross-functional communication so all employees follow the same set of objectives.
Build long-term relationships with reliable suppliers.
Avoid the trap of choosing a vendor solely based on competitive pricing. That practice usually leads to chasing the lowest price, changing vendors constantly and suffering from inconsistent service. Instead, build a relationship with a select group of stable suppliers who offer quality products and services at fair prices. In return, you’re likely to receive better customer service and flexibility when you need it.
Gain cost efficiencies from e-procurement technology.
Let technology do some of the heavy lifting when it comes to procurement. Mundane, time-consuming tasks only add to overhead costs and decrease employee morale. E-procurement can help with receiving products, service payments, billing, financial reporting, electronic communications and more. Most businesses find more accountability and greater efficiencies when using e-procurement software.
Focus on total cost of ownership (TCO).
Although price will always be a factor in procurement decisions, it’s important to take other considerations into account, too, such as the TCO of a product or service. It’s easy to forget that the majority of that TCO — 60 to 75% — comprises operating, training, maintenance, warehousing, environmental, quality and transportation costs, plus the cost to salvage the product’s value when it’s no longer useful.
Always seek best value.
The concept of best value goes beyond TCO and takes into account intangible values such as market opportunities, social responsibility, responsiveness and flexibility. This process takes more time and effort because value must be quantified. One example is switching to a higher quality, more expensive machine part that needs to be replaced less often and thus reduces cost in the long term.
Looking for more information about best value?
Read this white paper, “Unpacking Best Value,” released by the Center for Executive Education
at the University of Tennessee and the Sourcing Interest Group.