Four Steps to Managing Procurement Costs

2024-09-18

Under todays economic conditions, companies often acquire raw materials through procurement. In daily procurement operations, effectively reducing costs to achieve optimal procurement configurations is key to lowering operating expenses and increasing profitability. But how can a company control procurement costs while ensuring product quality? This presents a challenge for procurement teams.

Here are four methods companies can use to manage procurement costs:

1. Develop a Reasonable Procurement Plan
Create a procurement plan based on product demand and production schedules. The budget for procurement costs should be scientifically planned by analyzing historical product costs and current market prices. This plan should cover the quantity and specifications of the required materials.


2. Select Quality Suppliers
When it comes to supplier quotes, a common practice is comparing multiple suppliers to find the best deal. Procurement personnel must evaluate various suppliers raw materials to identify the most cost-effective option. Establishing long-term partnerships with quality suppliers can result in sustained reductions in product acquisition costs.

3. Manage Procurement Contracts
Managing procurement contracts is a dynamic process. Cost increases due to delayed deliveries or substandard quality from suppliers must be carefully monitored over time. Teams need to pay close attention to such details to avoid unnecessary cost hikes.

4. Analyze Data in Real-Time
After procurement is completed, the team must integrate and analyze the cost data, assess how cash flow and procurement costs impact employee performance, and learn from any mistakes to improve future procurement processes.

To effectively manage procurement costs, companies must not only implement these four strategies but also adopt a comprehensive view of cost management throughout the procurement process. This holistic approach will help uncover additional opportunities for cost reduction. Managing the full procurement lifecycle, including planning, contract management, expenses, and revenues, requires support from modern information systems.

8Manage SRM Procurement Management System facilitates seamless procurement processes, connecting all phases, from procurement planning and contract management to price comparisons, invoicing, and settlement. Because all business processes are managed seamlessly, the system provides robust control over procurement costs.


Additionally, the 8Manage SRM Procurement Management System offers the following features:
- A complete, easily accessible overview of all procurement elements.
- Real-time automatic expenditure summaries, providing unified access to all contracts.
- Supplier qualification management with automatic, real-time tracking of performance data.
- Insights into procurement efficiency from existing contracts, helping identify common terms, potential risks, and non-compliance issues.
- The ability to capture information, analyze data, and automate processes, enabling staff to make data-driven decisions.

Through features like automated expense classification, real-time data aggregation, embedded intelligent expense analysis, and detailed expenditure reports, the 8Manage SRM System empowers companies to track every procurement expense and control costs at their core.