Your Business Procurement Process Will Be Better After You Read This

Business Procurement Process

The rapidly changing customer behaviour nowadays forces companies to reinvent themselves again and again and to constantly improve their range of services.

The consistent inclusion of external ideas in the internal development process could contain the steadily increasing research and development costs. But first, you have to get the internal processes under control.

Cutting-edge products now often become obsolete within months and no longer within years. Companies no longer rely on dozens but hundreds of patents. Meanwhile, research and development costs are doubling every five years.

The crucial question in this customer-driven development race is what ultimately differentiates successful innovators from the competition. When it comes to open innovation, strategists have now developed some basic rules for practical use. Pioneers use them as a basis for successful development work.

Purchasing is one of the most important tasks in medium-sized companies. With the right know-how, employees in the department can leverage major savings potential in the company. Buyers should know that.

Professional purchasing in the company increases the yield – not only, but also because it enables high savings.

But what do buyers have to watch out for? How do they manage to get good quality for little money? And do you actually need strategic purchasing?

Below are three approaches to solving the most common challenges:

Rethink the procurement process

Sustainable procurement is important for your business and there are many needs to do so. Managing directors can request their management to include ideas from external suppliers in their work.

Ultimately, however, it is a task of purchasing to identify these and make them usable for your own company.

Unfortunately, the task of many purchasing departments is limited to reducing costs. Companies even have an internal innovation team to discover solutions on the market and jointly drive the development of new offerings.

As a catalyst, such teams help to purchase to assess whether development on the market will make it necessary to take action or not. In addition, innovation teams promote cross-departmental collaboration, for example with finance, law and marketing.

Focus on new forms of cooperation

So far, many companies have tried to fill the open innovation approach with life through competition with suppliers and universities. But that only scratched the surface of what’s possible.

Today, companies can reach hundreds of thousands of minds around the world via digital platforms. Virtual marketplaces for ideas connect people and thus also customers who have never had contact with each other before. Together, they can not only overcome minor challenges, but also major strategic obstacles.

Create an open culture

Far too often, inventions by third parties are first viewed critically by middle management and then rejected; in the end, a clever competitor picks it up.

The reason for such behaviour usually lies in the respective corporate culture. Some companies tend to try to keep all the patents used in their products in their own hands. Others reject outside innovations because of possible legal problems.

Open innovation strategies can only work if they take into account the different corporate cultures and the different behaviours of the people working there.

Under this condition, however, even particularly risk-averse companies benefit from this. In a first step, they can determine their strengths, for example. Employees are then instructed to find ways to discover suitable external ideas and have them evaluated across departments.

Some companies only realize the untapped potential of open innovation after a failure with a new product. Managers should never wait that long.

With a targeted analysis, it can be shown to what extent stubborn behaviour on the inside prevents innovations from the outside from increasing growth and profitability. Incidentally, such improvements often yield just as much, if not more, than conventional cost reduction initiatives.

Three questions companies should ask themselves

The following three questions show whether companies have the right strategy, the right supplier management and the appropriate organization to use outstanding external ideas internally:

  1. To what extent is the procurement strategy aligned with the key value drivers for the operational business?
  2. To what extent does the company encourage and use innovations from suppliers for its benefit?
  3. Does the company have the necessary organizational framework to achieve sustainable results with the open innovation approach?

Innovation networks:

Rethought

Companies should broaden and open up their network to achieve the best possible results with innovations:

  1. Universities

At leading academic institutions and start-ups, R&D departments can identify technologies and innovations related to their core technologies and products and make them usable for their own company.

  • Digital Platforms

Digital platforms have matured enough to allow businesses to easily access the best ideas of nearly a million students, engineers and scientists.

  • Suppliers

Companies should set up comprehensive relationship management for their ten to twenty most important suppliers and, on this basis, promote cooperation and direct exchange with the responsible business areas. Prerequisite: The strategic suppliers also regard them as particularly important customers.

  • Customers

Regular surveys can be used to find out whether customers notice the added value in marketable products, which is based not least on innovations and technologies from suppliers. In return, customers can also submit their innovation proposals by establishing feedback channels.

E-Procurement: More efficiency through digitized purchasing

E-procurement, i.e. digitized purchasing, simplifies and accelerates the purchasing process, so costs can be saved, errors avoided and different suppliers and their products can be better compared with each other.

The electronic link (Electronic Data Interchange; EPI) between purchasing companies and suppliers also relieves purchasing of routine tasks.

Effort and the issuance of paper invoices are largely eliminated thanks to electronic processing. Buyers can thus invest more time in retaining and developing their top suppliers.

Strategic Purchasing

The strategic approach is becoming increasingly important for companies. In practice, however, the buyers have to deal with operational activities most of the time.

The tasks in strategic purchasing include market analysis (constant search for high-performance suppliers), make-or-buy decisions, and single vs. dual vs. Multi-sourcing, evaluating suppliers and, of course, negotiating conditions with suppliers.

Due to the increasing complexity of the procurement markets, the analysis of the markets, especially for raw materials, is becoming increasingly important.

Even more so than with intermediate products such as screws, fluctuating prices, for example, metals, make it difficult for companies to make reliable purchase calculations and lead to higher costs.

The same applies to preliminary products and means of production. The aim is to improve market transparency concerning quality, costs and prices in purchasing management.

Software solutions enable complexities in the supply chain to be captured using big data analyses. Production is often only optimized in the individual production facilities at the regional level. Optimization in connection with the other production sites offers potential.

All in all,

Smaller suppliers, in particular, are still struggling with electronic tools and may need support from their customers with the digital upgrade.

Successful buyers work with psychological finesse when negotiating prices. Even if they are happy with the price offered, they don’t show it.

Instead, they prefer to postpone the conversation: “I don’t think we can get any further here, I’ll call you one day.”

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The supplier is taken aback and unsure. It’s not without risk, but it can lead to a better deal. It can save you money too like many other different money saving strategies for small businesses.