The procurement role is consistently evolving from a clerical back office function to a strategic business function. Procurement is more than just purchasing goods and services; it has moved to managing and deriving value from the supplier relationship. In rebate management their role involves identifying the right supplier, evaluating supplier performance, and negotiating trading agreements that can provide the highest value at minimum cost. Procurement also has a major influence on the overall costs of the business and cost reduction represents a huge portion of their rebate management strategy.
Procurement process steps
By mapping out the steps you need to take, choosing the right suppliers and negotiating the best deals, you will optimize the procurement process whilst saving time, money and reducing risk.
Step 1 – identify goods or services needed.
Step 2 – evaluate and select a supplier.
Step 3 – negotiate the terms of the trading agreement with selected supplier.
Step 4 – finalise the purchase order.
Step 5 – receive invoice and process payment.
Step 6 – delivery and audit of the order.
Step 7 – maintain accurate record of invoices.
Risks that can arise from your current procurement processes
Whilst negotiating with suppliers and signing off trading agreements, the following risks can arise at each stage of the procurement process:
- Lost trading agreements – Organization is of the utmost importance when it comes to rebate management. Trading agreements are often voluminous documents so need to be filed properly so they are easily accessible any time of the day.
- Poor negotiation skills – Procurement teams enter into tough negotiations over trading agreements that shift risk to one party or the other. Failure to understand these provisions can create immense additional risk to the company.
- Breach of confidentiality – Parties often share proprietary information with the agreement that it will be protected. Nevertheless, people who should not have access to the information often do especially when there aren’t role-based permissions.
- Missed deadlines for your deals - Most trading agreements have expiration dates and deadlines for renewal. If you are contracted with a supplier and miss a renewal deadline, you could face business disruptions due to cancelled contracts or wind up paying more for products or services due to a failure to renegotiate or an automatic renewal. On the flip side, if you fail to proactively reach out to your customers or associates before a contract expires, you could lose a customer or be forced to renegotiate less favourable terms.
- Inaccurate data - In order to make sound procurement decisions, organizations need accurate and reliable rebate data. Making purchases based on inaccurate rebate data can lead to challenges that have the potential to impact an organization’s bottom line directly. For example, when starting to order a new product they should check if they is already an opportunity to achieve a significant rebate sum on a current product.
Tips for streamlining the procurement process
Procurement processes are a series of steps that an organization identifies and follows in order to obtain goods or services for their goals and objectives. There are various ways to improve the procurement process; some are minor changes that focus on improving part of the process such as creating essential internal documentation. Other major changes can go as far as improving the whole process with digitalization.
Here are some examples of ways to improve your procurement processes which can add value to any organization:
- Maintain good supplier collaboration
Procurement professionals needs to maintain strong relationships with a group of suppliers they can trust. As part of streamlining your procurement processes, it is essential to make sure that both parties are on the same page and have definitive goals and plans of action laid out. In addition to evaluating supplier contracts on a regular basis to ensure performance and compliance from vendors, procurement departments should also be looking for ways to improve their relationships with them.
Maintaining good supplier collaboration might also increase your goodwill as a happy supplier might tell others how good you are to work with which might lead to new sourcing avenues. All you need to do is be fair with the suppliers in your business dealings, ensure that they are paid on time and appreciate their professionalism and skills.
Of course, there is always an opportunity to find new suppliers. However, the procurement process of finding a new supplier that suits your needs all over again is very time and money consuming because you have to research a new supplier, learn about their industry position and identify their negotiation tactics.
Suppliers need to be viewed as product-experts that procurement need to collaborate with – not just purchase from. This shift in focus to managing and collaborating with the suppliers will bring more value for the company and the suppliers and tie directly into the bottom line of each company.
- Reducing costs in the procurement process
Reducing costs is the primary aim of the procurement process and one of the most appreciated qualities of procurement professionals. In fact a Zycus’ survey Pulse of Procurement 2018, revealed that 54% of the surveyed professionals recognized cost savings as procurement’s key focus area.
if you want your business to save money, you must be willing to discuss pricing with your suppliers to ensure maximum cost-efficiency and transparency. The key to doing this is for any procurement professional to think carefully before making a purchase. Don’t get tempted to create purchase orders for every request that comes at their desk. This can lead to unnecessary expenses.
- Manage regulatory compliance
Procurement teams have to ensure that all parts of an organization including all suppliers and the entire supply chain comply with all regulations. Many procurement professionals don't know where to start or the appropriate tools, programs and systems to collect relevant information and meet regulatory requirements. The easiest way to meet compliance standards in the current landscape of ever-shifting regulations is to utilize a platform like Enable that allows all trading partners to interact with full transparency.
- Better your procurement negotiations
One of the most important tasks in the procurement process is procurement negotiations or working with suppliers to get ideal deal terms. Negotiation is not just about price, but about managing and improving overall supplier performance. A strategically successful procurement negotiation can promise welcomed savings which usually go hand in hand with a higher profit margin and a stronger competitive position.
A procurement professional needs to walk on fine line as far as negotiation is concerned. The struggle is between making the best deal for the company and at the same time making sure that a good relationship is established with the suppliers. A good way to sharpen your negotiation skills is through training.
- Empower stakeholders with visibility into your procurement processes
When it comes to signing off your deals how many times does someone reach out to the procurement team for a quick status update? How often does an agreement get stuck in the signing process because the stakeholders aren’t sure about what they’re signing? By giving each involved party visibility into the status of the trading agreement, everyone wins. The procurement process moves faster, no one has to ask what happens next and the procurement team avoids status questions that slow down their workflow.
- Automate manual procurement processes to eliminate human errors
Digitalizing your procurement processes shouldn’t replace the people on a procurement team, it should replace the parts of the procurement function that don’t improve with the human touch. For example, rebate management software can calculate, accrue, and allocate rebates automatically for you whereas spreadsheets cause errors. We have seen many times that humans don’t add value to those processes; it’s far more valuable to let the technology handle those parts of the processes while the people manage strategic responsibilities such as sourcing new suppliers, negotiating terms and managing relationships.
How can Enable streamline your procurement processes?
As revealed by the Deloitte Global Chief Procurement Officer Survey 2018, a lack of implementation of digital technologies is among the primary limitations of today’s procurement strategies. Around 17% of procurement leaders have no digital strategy in place for procurement.
As businesses often work with hundreds of suppliers every year, technology can play an integral role in helping you save lots of time and be more efficient. One way of using technology to improve the procurement process is by incorporating a rebate management system that can calculate rebates, report, forecast and create trading agreements. All these are time-consuming tasks and can be costly if done wrong. An effective procurement process will improve an organization’s bottom line and increase efficiency and profitability.