Improving Procurement Controls to Increase Savings During Economic Uncertainty
As companies try to navigate the economic uncertainty brought by the COVID-19 pandemic, many businesses will have to reduce their spending to account for lost revenue. While it might not be possible to immediately balance out income and expenditures, implementing stronger procurement controls can at least reduce unnecessary costs and help companies better understand their finances during this turbulent period.
In addition to increasing savings, adding procurement controls can be particularly important during these times as more employees work from home. Typical day-to-day communications and business processes have been upended, so procurement and finance teams may not be as in the loop as they might have otherwise been within offices. Companies can not stand idly by as employees make purchases from home and perhaps do not report them right away, thereby keeping finance and procurement teams in the dark.
Instead, businesses can ideally leverage cloud-based tools like e-procurement or spend management software that make it easy for employees to still make necessary purchases remotely, while procurement and finance teams can get real-time insights into these purchases and implement controls they’re comfortable with. Companies can also better educate employees about what they need to do to pitch in and follow procurement controls during this time.
Increasing Spend Visibility
In order to understand what procurement controls to implement, such as knowing when spending limits have been reached, it’s important to increase spend visibility. When procurement and finance teams can get a full understanding of all their spend — not just their largest purchases but also their tail spend — then they can start to identify cost-saving opportunities that can be achieved through tighter controls.
For example, during this period of working from home, employees might be adjusting previously booked travel. In many cases, companies can end up reducing costs as travel gets canceled, but it’s important to have visibility into this spend, ideally in real-time, to understand how costs relate to current revenues.
Some companies might also allow employees to make software and hardware purchases at this time to make working from home more practical, and it’s important that these costs can quickly be accounted for.
That means companies should implement procurement controls such as requiring employees to make purchases through designated procurement software, if available, so that the spend data automatically gets captured.
If companies do not have a procurement system in place, they can at least implement temporary workarounds, such as requiring employees to use corporate credit cards for purchases so that this data can easily be seen by procurement and finance teams, rather than waiting for employees to submit reimbursement requests for purchases made with personal credit cards.
Implementing Stronger Approval Processes
As companies improve their spend visibility, they can also implement stronger approval processes to increase cost savings. For example, some purchases in the past may have been allowed to go through at an employee’s own discretion or based on a supervisor’s approval. But in these challenging times, purchases may also need to be approved by others such as procurement and finance leaders.
Doing so can help companies identify purchases that could be delayed until later in the year to free up cash flow now, and it can also help to improve oversight so that errors like duplicate purchases do not go through.
At the same time, companies may want to streamline workflows for certain types of transactions to not overly burden employees. So if there are areas of procurement where you’re confident employees will make good judgments, you could use e-procurement or spend management software to automatically approve purchases that meet certain cost and compliance thresholds.
Then, for larger or more complex purchases that require additional oversight, you could use these types of software to implement better workflows, such as by designating certain procurement and finance leaders to automatically receive alerts for purchases that require their attention.
Ideally, these approvals can be made remotely, such as on mobile devices. That way, even as employees deal with the challenges of working from home and the distractions that can come from taking care of children while schools are closed, staff can still efficiently approve purchases in line with procurement controls, regardless of what device they’re on.
Improving Supplier Relationships
By improving spend visibility and implementing stronger approval processes, companies can also ultimately improve supplier relationships, which can be critical to navigating these uncertain times.
For example, being able to quickly approve vendor payments can be key to keeping suppliers satisfied during this time, as they may be dealing with cash flow issues of their own. Companies that lack the tools and processes to keep up with payments then risk losing key supplier relationships, especially in the long term. At the very least, procurement teams need visibility into what’s happening with suppliers so that they can communicate with vendors and figure out alternative solutions if need be.
Moreover, procurement teams can work with suppliers to implement procurement controls that work for both sides. For example, vendors may be more comfortable shipping a few large orders rather than several small ones, especially as warehouse employees practice social distancing.
In that case, companies can implement procurement controls so that only purchases above a certain size get approved. Doing so may be temporarily inconvenient, but it can go a long way toward securing better rates and a smooth working relationship with suppliers in the future.
Don’t Wait to Improve Procurement Controls
Many companies are undoubtedly under a lot of pressure during this time, but taking the time to improve procurement controls can help ease that pressure if it means getting a better handle on finances.
For now, companies can at least inform employees of preferred purchasing processes that will help procurement and finance teams increase spend visibility and control. From there, companies that do not yet have procurement tools in place can look to implement solutions that can help automate controls to increase long-term savings.
To learn more about how your organization can improve procurement controls and overcome other procurement challenges that can help you navigate these uncertain times, download our guide — A Checklist for Procurement Teams to Overcome Purchasing Challenges and Gain Significant Savings.