Proven Ways to Cut Procurement Costs and Boost Your Bottom Line

Are high procurement costs holding your business back and keeping you on edge? If so, you're experiencing a problem anguishing many other entrepreneurs worldwide. And it's a problem you want to solve as quickly as possible because it can hurt your business significantly.

 

The first casualty of high procurement costs is your profitability. As these costs eat into your profits, your business becomes less competitive. Once this happens, you won't be able to order the products in the quantities you want. As is the case in such a scenario, ordering in lower quantities is often more expensive. That not only reinforces your high procurement costs but increases them further.

 

So, it seems you can't catch a break. Isn't there a way out of this vicious cycle? Yes, but only if you take cost reduction in procurement seriously by adopting the right strategies. At TVCMALL, we want you to overcome the challenges that impact your business and THRIVE! To help you get on the right track, we'll delve deeper into how you can cut your procurement costs effectively.

Total Cost of Ownership in Procurement

 

You must determine the cost of a product you purchase early on. Be forewarned that the purchase price alone will not give you an accurate picture of the product's true cost. Instead, use total cost of ownership (TCO) to calculate all the costs involved in acquiring the product, including all the costs incurred during its lifecycle.

 

Here are the costs associated with TCO from procurement through to end of life:

 

● Purchase price: The cost of an item that also includes the supplier's profit margin.

 

● Acquisition costs: All the expenses incurred when delivering the item from the supplier to the customer (reseller, wholesaler, or e-commerce store). These often include packaging, transport, and customs duties.

 

● Warehousing costs: When the item arrives at the customer's warehouse, there are additional costs to consider. These include rent, insurance, staff, utilities, storage, and handling costs.  

 

● Usage costs: These often include inventory, repackaging, repurposing, warranting, and installation costs, if applicable.

 

● End-of-life costs: The expenses incurred in disposing of an unsold, returned, or damaged item.

 

Cost Reduction Strategy in Procurement

 

Follow these effective strategies to reduce your procurement costs:

 

● Guidelines: Create a formal procurement procedure and ensure that the assigned company buyer or centralized procurement team never deviates from this. You want to do this to reduce the likelihood of maverick spending and fraud.

 

● Buy in bulk: Avoid placing small and repetitive orders, as this increases your product costs and shipping fees. Instead, buy in bulk to enjoy massive savings and discounts.

 

● Strategic sourcing: Source your products from fewer vendors to secure better terms and prices since you'll place larger orders instead of splitting them into smaller orders among many vendors. Consolidate your purchases if a vendor is willing to offer you better deals on high-volume orders.

 

● Automate procurement: Utilize the latest e-procurement technologies to handle purchases, billing, and accounts in an automated and efficient manner. You'll reduce accounting errors and unnecessary repeat orders that drive up costs.  

 

Benefits of Centralized Procurement

 

Centralized procurement involves establishing a team or department for the sole purpose of purchasing products for your company. Having such a team will impact your business in several positive ways, as follows:  

 

● Cost reductions: Consolidating your orders and buying in bulk will secure better prices, discounts, and shipping fees.

 

● Reduce waste: Minimize the possibility of spending on duplicate orders or initiating purchases, which may go against company policy.

  

● Enhanced risk management: Gain insights into your spending and suppliers to better manage your exposure to risk.   

 

● Systemic procedures: Establish processes to streamline all admin tasks and eliminate unnecessary activities from the daily schedule.   

 

● Improved supplier relationships: Foster stronger relationships with suppliers and assign a contact person to deal with your most important suppliers.  

 

● Better teamwork: Staff collaborate and communicate more cohesively, while individual staff members play to their strengths.  

 

● Operational efficiency: Standardized workflows help improve company efficiency while reducing unnecessary busy work.

 

● Stronger compliance: Stay on top of regulatory changes that impact the products you order.

 

Direct Material Sourcing

 

Direct material sourcing is the process of acquiring raw materials or components primarily for the production of new products. A manufacturer would utilize direct material sourcing but carefully manage the acquisition of raw materials at a reduced cost.  

 

Low-Cost Country Sourcing (LCCS)

 

LCCS is the process that companies often use to acquire raw materials, products, and services from countries with lower labor and production costs. It's a popular global sourcing strategy for companies to increase their competitive advantage and profit margins.

 

Consider the following counties for your LCCS strategy:

 

● Brazil

● Cambodia

● China (where TVCMALL is based)

● India

● Indonesia

● Thailand

● Vietnam

 

Conclusion

 

Cutting procurement costs is a surefire way to boost your bottom line and increase the sustainability of your business. It's an involved process that will take time and effort to implement, but the long-term benefits are worthwhile. Contact us today to learn how we can help you slash your procurement costs and access many extraordinary products!