Procurement 101Budgets: Optimized vs Controlled
Someone very wise once made an insightful statement about budgets. To paraphrase: budgets tell us what we can’t afford. The original quote has been abbreviated, but when applied to monitoring budgets in procurement, it’s a statement that Tradogram is eager to examine further.
A budget, when properly implemented, does so much more than act as Fort Knox for company spend.
If asked, many CEOs and Financial Managers might truthfully declare that their corporate budgets are “under control”. However, there’s a big difference between a budget that is simply being controlled and a budget that has been optimized. This is exactly where Tradogram enters the equation.
YOUR MONEY, OR THE ENERGIZER BUNNY?
There are ways to maximize any given budget so it appears to keep going and going and going, as if without limits.
First of all, a budget structure should be company-specific, even though the struggle to save is a point of commonality across many industries. In 2011, a strategy consulting team at PricewaterhouseCoopers noted that “too many companies discover that a large portion of the savings their procurement executives promise seem to leak away“. Unfortunately, this isn’t breaking news. There’s no “one size fits all” approach to perfect budget design and savings tactics. Multiple factors, such as the number of budget levels and the type of budget (operating, financial, static, etc.) will dictate its parameters.
Technology can help facilitate an economy of scale when ordering from a single supplier or multiple suppliers. Through the use of an eProcurement platform, supplier negotiations can provide another venue for increased savings – Tradogram provides comparative views of all quotes and counteroffers so it’s painless to determine the best terms for your precise purchasing needs. Your savings will exceed expectations.
RECONSIDER THOSE HOURS SPENT IN MEETINGS
There’s no denying the fact that meetings related to procurement can be the source of many migraines. The meeting quality should be prioritized over quantity, however this is often not possible with a disorganized purchasing process. Why? Most detrimentally, time is wasted when employees share information with select people from certain departments only to discover that critical data didn’t reach the right decision makers. So what happens? More meetings! More repetitive discussions! To make matters worse, entire conversations tend to slip through the ears when employee communication skills need fine-tuning.
Now for the good news – adopting an eProcurement solution can reduce these unnecessary meetings in several ways. The ability to set online PO approval routing and user permissions clarifies inter-departmental roles and responsibilities. No more running around like a maniac in an attempt to determine who needs what information to fulfill their job description. Spending assumptions can be corrected with minimal hoop-jumping and as a result, savings are realized.
MAKE DOCUMENTATION YOUR GREATEST DEFENDER
An old-fashioned approach to data and record collection can be a financial drain on a company. When papers are misfiled or “lost” it becomes frustrating, time-consuming, and frequently impossible to review past supplier and employee performance. This may lead to the re-use of a supplier that was too costly, had a poor delivery history, etc., or employees that slip through the cracks unnoticed. These factors have the potential to drain the budget, and for no reason other than a lack of accessible documents. But don’t despair, this can be corrected.
Tradogram automatically generates audit reports for all procurement activity and provides standardized requisition forms that can be effortlessly sorted for convenience. Increased organization translates into less maverick spending.
CENTRALIZED VS. DECENTRALIZED: KNOW YOUR NETWORK
Consider the structure of a spider web – the strength of its design relies on threads radiating out from the centre in a repeated pattern. Without this specific structure, a web could easily be a messy knot. What kind of web, or network, sounds more beneficial to the purchasing process?
Far too many companies still rely on decentralized purchasing. For purposes of efficiency, Tradogram recommends centralizing procurement activity. Requisitions from all departments can be consolidated into a single PO to secure volume discounts (which help to promote increased budgetary control) with the chosen supplier. Company needs can be met through a network that facilitates workflow and emphasizes common objectives.
THE HUMAN FACTOR & THE BUDGET
Think of your own organization: if the Purchasing Officer is away for a few days, is the rest of the team (nevermind the entire company) still able to conduct procurement tasks in a timely manner?
If the answer is no, implementing Tradogram can ensure that business continues uninterrupted even without direct supervision. This User-friendly solution is easy to learn and allows employees to pick up the slack when a Purchasing Officer is absent.
It is critical that this technology also encourages employee performance tracking. This means high performers will feel appreciated and it also reduces the likelihood that poor performers will float through an organization without detection. The reduction of the opportunity for human error helps eliminate “leakage” in the budget.
To summarize: a controlled budget is not the same as controlled procurement. However, when these separate concepts are combined a fantastic power team emerges. This can be achieved through the use of Tradogram, a powerful tool that reduces risk and adds value to the purchasing process. A budget should do more than just dictate what is unaffordable – no need to be constantly hitting your head on the spend ceiling.
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