Procurement’s Tipping Points: three factors that trigger the need for professional procurement
- 17 Aug 2017
We asked over 250 senior managers and procurement professionals at mid-sized UK businesses about the triggers that led them to invest in professional procurement. Based on the findings we’ve identified what leads a business to reach its tipping point to adopt formalized procurement processes and systems.
Our latest study Procurement’s Tipping Points identifies the key triggers in an organization that cause a tipping point leading to an investment in formal procurement, and whether upstream (supplier-related) or downstream (operational spend and invoicing related) procurement processes are under the most pressure, as well as the 11 procurement goals mid-sized UK businesses are aiming for.
With 82% of our respondents having first-hand experience of implementing procurement in a growing business, our research brings to life the experiences of these procurement leaders. In our report, we look at the common growth barriers facing mid-sized businesses, which compounded with a lack of formal procurement processes, creates the problems that lead them into investing in professional procurement.
Our research revealed an organization is ready to introduce professional procurement when:
- an organisation’s turnover or spend hits £50m
- it has 100 supplier contracts
- 500 invoices are being processed per month
So, if you’re reading this and the criteria above sound like your business, chances are that you could be heading towards a ‘tipping point’, especially if you’re feeling the strain of manual supplier management and purchasing processes!
So, having identified when a business is ready to invest in professional procurement, what are the three factors that trigger a ‘procurement tipping point’?
1. Tipping point 1: 68% say rising costs
With the rise in inflation and oil prices, combined with Sterling’s plummeting buying power with Brexit, many businesses are under pressure to reduce organizational-wide spend. However, with a lack of systems to control, manage and account for spend, it can be difficult for any business to reduce cost. So, by introducing a purchasing system to the procurement function, it ensures buyers only access products from contracted suppliers at pre-approved prices, helping automatically reduce non-approved ‘maverick’ spend. And with all buying being processed via a purchasing system, you’re able to stay on top of your buying with real-time spend tracking. This spend information can then be leveraged to negotiate better prices with suppliers, helping you get to grips with rising costs.
Organisations can streamline and automate purchasing processes, and tackle maverick spend and get real time spend reporting by using Purchase to Pay systems.
2. Tipping point 2: 45% say inefficient and labour intensive processes
We all know that trying to source new suppliers can turn into a lengthy exercise. You have the lengthy research phase, then the gathering of all supplier information, usually supplied to you in several formats and often completed with little consistency or care from one supplier to the next, plus the subsequent work to agree a contract and on-board the chosen supplier(s) into the business. Without formal processes or systems in place, from selection to contract award, the outcomes are often hampered by error and inefficiency.
By deploying an online tool such as a Sourcing or an Contract Management system, you can automate and centralise much of the time consuming manual work, taking away the inefficient mixture of staff tasks - spreadsheets, phone calls, and emails that are needed to pull the whole supplier management process together.
3. Tipping point 3: 30% say increasing supplier risk
The third factor that tips organizations into procurement, is the potential risk posed by the suppliers themselves. By working with poorly performing and often non-compliant suppliers (even if non-compliance is failing to meet basic financial stability criteria considered a minimum requirement for trading together), businesses often put themselves at risk, whether financially, or from a reputational perspective when the necessary due diligence about a supplier’s business operations is missing.
A case in point for supplier due diligence is the recent supermarket case, where over 700,000 contaminated eggs, sourced from Dutch farms were removed from shelves across the UK. With perhaps a more robust supplier evaluation process the supermarkets in question may have been able to obtain documentary evidence in advance about what feed the hens were given, how the feed was grown and whether it contained the chemicals banned in the UK.
Today’s eProcurement software allows you to make your absolute critical requirements for trading a core part of the supplier information gathering process, making it a requirement of the supplier to provide all the necessary proof points online, in one single location. With all accreditation's, certifications and financial information filed securely online, and with alerts to tell you when they are due for renewal, you’ll be far less exposed to supplier risk.
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