Digital procurement: 4 ways to boost efficiency and save money
Many growing companies continue to use slow, inefficient tools like paper, email and spreadsheets to manage their buying. This can lead to serious problems, including carrying too much or too little inventory, missing out on cost-savings opportunities and putting up with frustrating inefficiencies.
A better way is to use digital procurement software that will help you efficiently manage your purchasing.
“If you’re not managing the procurement system properly, there’s no visibility for the other people in the company who need the information,” says Jonathan Pastrikos, a BDC Senior Business Advisor.
Depending on your industry, there are numerous cloud-based systems that allow you to plan, track and efficiently manage purchasing.
Pastrikos, who advises entrepreneurs on technology strategy and system selection in the Toronto area, identified four areas where digital procurement can streamline your purchasing and save you money.
1. Managing inventory
When thinking about purchasing, the first place to start is to know what you have in stock, what’s been committed to fill orders and what new material has been ordered and is on its way.
If you’re not managing the procurement system properly, there’s no visibility for the other people in the company who need the information.
Jonathan Pastrikos
Senior Business Advisor, BDC
Inventory management software allows you to do all these tasks and more. It allows you to track stock levels as material is received, stored and consumed. Information can be captured more quickly and efficiently with a scanner or a smartphone that works with bar coding, NFC (near field communication) or RFID (radio frequency identification technology. It can also be integrated with your accounting system to provide timely financial reporting.
“Once everything is in the system, then you’re in good shape because it now has the data to generate information and drive decisions,” Pastrikos says.
2. Planning purchases
Failing to properly plan purchases can lead to excess inventory, or worse, shortages that delay production and order fulfillment—frustrating customers and throwing a wrench into your operations. This can be particularly damaging to manufacturers that practise just-in-time inventory management.
Digital procurement systems can make buying suggestions based on inventory on hand, preset minimum and maximum levels, orders that have already been placed and even anticipated customer demand. The system can also analyze historical data to adjust your purchasing for seasonal demand and other variations.
Nevertheless, these are only suggestions. You might have information the software doesn’t, leading to different buying decisions. For example, you might need more supplies for a special promotion, or know a certain product will take four weeks to arrive from overseas. But, at least, buying is proceeding according to a plan that can be tracked.
3. Managing your suppliers
Supplier management systems allow you to track interactions with suppliers, including evaluations, contracts, pricing and performance.
Good monitoring puts you in a position to identify the best suppliers, provide performance feedback and ask for volume discounts, among other benefits.
“You can track purchase history, on-time performance and quality of goods received,” Pastrikos says. “Those are the kind of key metrics you want to score and manage your suppliers.”
4. Executing your purchases
You know what’s in your inventory, planned your buying and done your supplier due diligence. Now, it’s time to issue purchase orders for the supplies you need.
A digital procurement system tracks your purchase orders, ensures they’re from approved suppliers and facilitates the approval process. When the goods arrive, shipping documents can be scanned, quantity and price reconciled with the purchase order, quality gets checked and a receipt confirmation is generated.
“Your accounting department can do a match to say: Yes, we received an invoice from this supplier, that matches this purchase order and this receipt confirmation. You have validated this was an authorized purchase; we received the goods in the correct quantity; and the price is correct on the invoice. So, you can pay the invoice.”
While there are huge potential benefits from using digital tools to optimize your buying, Pastrikos warns the system depends on disciplined input of accurate data by your employees. This requires employee communication, training, monitoring and enforcement of rules.
“That’s the secret with any system. If you don’t provide it with the right information, it’s not going to know.”