Cost Reduction in Purchasing

 

Authored by Khizar Farooq

 

A detailed overview of expenditures is crucial to effective procurement. By looking at all the aspects affecting the prices of your products, you will be able to identify where costs can be cut.

Generally, the purchasing department’s goals are similar to those of anyone who buys something: Get the best possible quality of all supplies, services and equipment at the lowest cost. Most often, the purchasing department is that part of the procurement section that handles the supply chain process. To ensure quality and to prevent unethical practices, purchasing is usually separate from receiving and accounts payable.

How to become world class procurement organization

World-class procurement organizations outperform their peers by striving to providing unique value beyond cost reduction, including becoming a trusted advisor to the business, driving supplier innovation, and focusing on risk management.

 

Trusted Advisor - World-class procurement organizations are much more likely than typical ones to be considered valued partners by the business, not gatekeepers or administrators. The Hackett Group’s research shows that they have a high level of involvement in planning and budgeting half the time, nearly 4x more often than at typical companies. To achieve this status, world-class procurement organizations make certain to proactively understand what drives the requirements of the business as opposed to simply facilitating the buying process. This makes it possible to reverse-engineer costs and explore potentially less expensive and/or higher-quality alternatives.