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:
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:
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:
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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