Every Dollar Saved Goes Straight to The Bottom Line Profit
It is time to realize the enormous opportunities that lie in exploring the procurement function.
Companies operate under diverse internal procurement cultures and capability strengths. In many companies the purchasing function is operated for formal reasons – and therefore not strategically considered an important part of building business strengths. In that case, the purchasing function is simply operated as inferior assistant role. However, it is a fact that between 35 percent and up to 60 percent of company expenditures is related to sourcing of goods and materials – at same time three times less amount is related to company’s salary cost. It is worth bearing in mind that procurement excellence will create many more values, than a price increase or a reduction in the number of employees. Focusing on the procurement function, for example by partnering with suppliers, drives profitability through better purchasing prices. Procurement can generate gigantic competitive advantages by systematically sourcing the best product qualities at the most competitive prices. Understanding the values of the procurement function, it is remarkable how many managers neglect this enormous opportunity that is rooted in leveraging that function. It has been clearly proven for many businesses that effective procurement management is one of the core foundations to drive continual competitive advantages strengths.
Focusing on procurement excellence is considered so highly important because the cost savings or productivity improvement goes straight to a company’s bottom line profits. In other words, if you save one dollar in procurement it will go straight to the company’s bottom line profit. Or it could drive sales in another case, by negotiating lower purchasing prices and donate the whole savings directly into the consumer pocket, at the point-of-purchase. Bargaining lower purchasing prices on behalf of the consumers empowers the purchasing agents to make a better deal. Better purchasing prices drives competitive advantages over the short- and long-term. Focusing on procurement excellence is the fastest scheme to improve profits, revenues and cash-flow of a company. Moreover, the procurement function operates without exposing the brands or the business to any media risks. For instance, a price increase or employee layoffs are among the alternatives to drive bottom line profits – but, they could trigger off bad publicity in media. Procurement management occurs inside of the company surroundings.
It has been acknowledged for long time that it is no longer possible to increase sales prices to get back on expected profit levels. This fact has put pressure on top management to find new innovative ways to operate their business. The procurement role has shifted from being solely a cost center role into being the company’s greatest profit centre. The way companies have positioned the procurement role has changed. To create competitive advantages many companies have strategically positioned the procurement function in line with the company vision, mission and values statements. In the past the purchasing prices and the transport cost was visualized as being fixed. But, after going through rationalized thinking and by identifying that the procurement cost accounted for the largest part of the company expenditures – then the opportunities are waiting to be explored.