Budgeting for purchasing professionals: 4 ways to improve procurement

Budgeting is a hugely important aspect of running any kind of business. It lets us know what we can and can't afford, as well as informing several key components of a company's purchasing strategy.

At times, however, it can feel like there's an imbalance between budgeting and procurement, which can render even the most carefully-prepared budgets useless. Without the right procedures in place, company finances can end up taking a massive hit, making it essential that both budget and procurement requirements stay on the same page.

In this detailed article created for buying professionals, we’ll focus on the key elements of budget planning and management with regards to procurement. Covering some highly-beneficial methods that streamline and optimise sourcing activities to produce better outcomes for their organisations.

1) Assessing your existing vendors

Perhaps you already work with vendors and have been doing so for a number of years, and you've noticed their performance slip lately? Is the delay in the supply chain or the headaches caused by their customer service not worth it in the long term?

Whether you're looking for new vendors to replace existing ones, or this is your first time sourcing potential vendors, you'll want to stay aware of things such as price, reputation, customer service and turnaround time.   

Because of the nurturing and negotiation, vetting vendors takes time but it's well worth it in order to find those with the best price and highest-quality goods that still fit into your budget.

So, what can you do to ensure you're working with the best vendors? A great system to use is Carter's 10 Cs of Supplier Evaluation, which rates suppliers on a scale (such as 1-5) for each of the areas mentioned below:

• Competency: How well have they satisfied your needs when working with them?
• Capacity: How well have they handled large orders while also having other clients to deal with?
• Commitment: How reliable a partner are they?
• Control: Are they in control over their own supply chain processes? Insights here can also highlight their own reliability; do they regularly deliver and adapt to unexpected problems, for instance?
• Cash: How strong are they financially? Do they have the means that will allow them to stay in businesses during difficult periods? Investigating their cash position and creditworthiness comes in useful here.
• Cost: How do the prices of their goods compare to the goods of their competitors?
• Consistency: Do they produce the same goods and quality of goods, or provide a service, with an appreciable consistency?
• Culture: Do their values align with yours in ways that matter to your company?
• Clean: Do they use environmentally-friendly practices and treat their employees and neighbours with care and respect?
• Communication: Do their communication methods sync up with yours? Are they frequently in touch with you to understand your needs? Think back to times of crisis too – how did they communicate with you during these instances?

2) Managing key stakeholders

A lot of procurement success lies in ensuring everyone is in sync regarding budget and goals. Therefore, purchasing professionals should seek to get buy-in from finance and accounting stakeholders to optimise their efforts.

The necessary people must get together to agree on a budget, draft a plan and, through the insights of the finance and accounting teams, identify any savings that procurement can make.

With more people, more departments and higher costs to contend with in order to keep operating costs in check, the need to keep the bottom line looking healthy underpins the importance of proper procurement budgeting. It's here that the additional buy-in from relevant stakeholders lends credibility and legitimacy to the procurement budget.

The following actions can help to do just that:

Understand the business drivers

Procurement, much like all other departments, provides a service to the wider business. Thus, stakeholder relationships are just as important as external ones.

In creating stronger cross-functional relationships with other departments within the business, the procurement team should consider the doing the following:

• Ensure good knowledge of other departments' business objectives
• Understand what drives value for each team
• Establish what success looks like across different parts of the business

Increase visibility of procurement activities

Rather than mere cost-saving, procurement has evolved. That means procurement departments should find further metrics to measure their other successes rather than realising cost savings. Doing this can support them   in being recognised as a strategic partner across the business.

A procurement team aiming for greater visibility of their activities should factor in non-cost reduction benefits, and then have each member of the team address these challenges. This allows them to open cross-departmental conversations concerning how procurement can support and add value to different business units, the benefits of which can be shared with all stakeholder groups.

Improve engagement with internal stakeholders

Procurement managers should aim to build rapport with stakeholders, communicating with them appropriately in both one-to-one and small group situations. To this end, it's worth working on the team's communication and presentation skills so they can speak confidently and precisely.

Another way to improve this understanding and rapport is by joining senior stakeholder meetings. This allows you to align procurement with the current strategy, leading to a greater understanding of procurement objectives.

In turn, this increases procurement advocacy, so that stakeholders can work with you to ensure the right messages about your objectives filter throughout the business.

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3) Create a consistent system

When you've worked with vendors to source goods and have become familiar with your relationship, it's a good idea to create systems that can help you to keep track of your budget and further cut down on extra costs, like the following:

• Document and review supplier terms and minimums: Create a master document so you can keep track of suppliers and your agreements with each of them. This ensures all of your order minimums, terms and other important information that relates to your suppliers is in one place.
• Consolidate orders: Consolidating your orders can cut down on delivery costs. This takes time, but fewer orders translates to less work for those in charge of receiving orders and processing payments. It also means making fewer unnecessary purchases, and the more purchases you make, the most time is spent on putting away stock, processing paperwork and making payments. Consolidating your orders saves money on both your direct and indirect costs, so it's well worth looking into.
• Use only preferred vendors: Multiple vendors that sell the same products might cost you extra; it's far better to have a dedicated supplier for each product you need. Plus, larger orders from a smaller selection of suppliers means stronger relationships and bigger discounts. This also lets you eliminate suppliers you no longer work with from your system – ensuring no one orders from them by mistake. Just be sure to discuss these plans with suppliers; they may be able to offer you a better deal.
• Check the market: If you were responsible for procuring physical goods, then any leftover stock would be wasteful, costing you more money just to store. The same view should be kept when it comes to purchasing other resources – such as energy. A useful approach to ensure you’re aware of the current market opportunities is to speak with other procurement and buying professionals on a regular basis for their own insights.

4) Keep track of your budget using procurement software

Now that you've established a budget, an approval process that ensures best practice and streamlines the process can make things easier for everyone involved in procurement.

Procurement software can take care of this, allowing colleagues to submit their individual purchase orders that notify management and delineate which team members have approval privileges – adding a layer of protection to the purchase process so that only certain employees can approve purchase orders.

This ensures that excessive or costly orders don't get made without the permission of relevant procurement managers, allowing companies to compare their actual performance against the goals detailed at the planning stage.

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