Reducing purchasing costs requires a combination of creativity, strategic thinking,
and a willingness to explore different approaches.
Here are some creative ways to achieve cost savings in purchasing:
1. Negotiate Supplier Contracts:
Negotiate better terms with suppliers, such as bulk discounts, extended payment
terms, or lower prices for larger orders.
Consider long-term contracts to secure favorable pricing over an extended period.
2. Supplier Diversification:
Explore alternative suppliers to create competition and leverage better deals.
Consider global sourcing to find suppliers in regions with lower production costs.
3. Collaborative Purchasing:
Collaborate with other businesses or industry partners to negotiate bulk discounts on
common purchases.
Join purchasing consortia or alliances to increase your buying power.
4. Just-in-Time Inventory:
Implement just-in-time inventory management to minimize carrying costs and
reduce the risk of obsolete stock.
Use technology to track inventory levels in real-time and optimize ordering.
5. Leverage Technology:
Implement e-procurement systems to streamline the purchasing process and reduce
administrative costs.
Use data analytics to identify cost-saving opportunities and track supplier
performance.
6. Cost-Sharing Agreements:
Explore cost-sharing agreements with suppliers, where both parties benefit from cost
reductions and efficiency improvements.
7. Supplier Relationship Management (SRM):
Build strong relationships with key suppliers to encourage better cooperation and
potential cost-saving initiatives.
Work collaboratively with suppliers to identify areas for mutual improvement.
8. Value Engineering:
Work with suppliers to find cost-effective alternatives without compromising quality.
Consider redesigning products or processes to reduce material or production costs.
9. Energy Efficiency:
Implement energy-efficient practices in manufacturing processes to reduce
operational costs.
Consider suppliers who prioritize sustainability, as it can lead to long-term cost
savings.
10. Benchmarking:
Regularly benchmark your purchasing costs against industry standards to identify
areas for improvement.
Learn from best practices in your industry and adapt them to your organization.
11. Risk Management:
Assess and manage supply chain risks to avoid disruptions that can lead to increased
costs.
Develop contingency plans for potential supply chain issues.
12. Continuous Improvement:
Implement a culture of continuous improvement, encouraging employees to identify
and suggest ways to reduce costs.
Regularly review and update purchasing strategies to adapt to changing market
conditions.
Remember that these strategies should be tailored to your specific industry,
organization, and market conditions. Combining multiple approaches and staying
adaptable is key to effective cost reduction in purchasing.
Let's understand steps to improve Supplier Relationship Management
(SRM):
1. Establish clear communication channels:
Effective communication is the foundation of strong supplier relationships.
Establishing clear and consistent communication channels ensures transparency and
mutual understanding. Regular meetings, updates, and feedback sessions help in
aligning goals and expectations. This can be achieved through various means such
as emails, video calls, and face-to-face meetings. Clear communication helps in
addressing issues promptly and prevents misunderstandings.
2. Implement performance metrics:
Monitoring supplier performance is essential for maintaining high standards.
Implementing performance metrics allows you to track key aspects such as quality,
delivery times, and compliance with agreements. These metrics should be regularly
reviewed and discussed with suppliers to ensure continuous improvement.
Performance metrics provide a basis for evaluating supplier contributions and
identifying areas for enhancement.
3. Foster collaboration:
Collaboration with suppliers can lead to innovative solutions and improved
processes. Involving suppliers in the planning and development stages of projects
encourages a sense of partnership. This collaborative approach can result in better
product designs, cost savings, and more efficient operations. Joint problem-solving
and brainstorming sessions can also foster innovation and strengthen the
relationship.
4. Invest in technology:
Leveraging technology can significantly enhance SRM. SRM software and other
digital tools streamline processes, improve data sharing, and provide real-time
insights into supplier performance. These technologies facilitate better decision-
making and more efficient management of supplier relationships. Investing in
technology also helps in automating routine tasks, allowing procurement teams to
focus on strategic activities.
5. Build long-term relationships:
Building long-term relationships with suppliers is beneficial for both parties. Trust
and mutual benefit should be the foundation of these relationships. Recognizing and
rewarding good performance encourages suppliers to maintain high standards. Long-
term relationships also provide stability and reliability in the supply chain. Working
together to resolve issues and continuously improve processes strengthens the
partnership and creates a win-win situation.
By focusing on these areas, purchasers can create a more efficient, reliable, and
innovative supply chain. Effective SRM not only reduces risks but also drives
competitive advantage and value creation.
𝗣𝗿𝗼𝗰𝘂𝗿𝗲𝗺𝗲𝗻𝘁 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 𝗢𝘃𝗲𝗿𝘃𝗶𝗲𝘄:
Procurement is the process of acquiring good and services from supplier by
competitive bidding, E-auction, tendering, to meet the organization need timely by
ensuring quality and quantity.
𝗣𝗿𝗼𝗰𝘂𝗿𝗲𝗺𝗲𝗻𝘁 𝗺𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁 manage all involved process right from need
identification, strategic sourcing, supplier selection, contract negotiation, order
management to payment process.
𝗞𝗲𝘆 𝗢𝗯𝗷𝗲𝗰𝘁𝗶𝘃𝗲:
💡 It follows 𝗽𝗿𝗼𝗮𝗰𝘁𝗶𝘃𝗲 𝗮𝗽𝗽𝗿𝗼𝗮𝗰h to fill the request.
💡 Focuses on 𝘃𝗮𝗹𝘂𝗲 𝗰𝗿𝗲𝗮𝘁𝗶𝗼𝗻.
💡 It is more 𝘀𝘁𝗿𝗮𝘁𝗲𝗴𝗶𝗰.
💡 Focuses on maintaining 𝗹𝗼𝗻𝗴 𝘁𝗲𝗿𝗺 𝗿𝗲𝗹𝗮𝘁𝗶𝗼𝗻𝘀𝗵𝗶𝗽 with supplier.
𝗧𝘆𝗽𝗲 𝗼𝗳 𝗽𝗿𝗼𝗰𝘂𝗿𝗲𝗺𝗲𝗻𝘁 𝗠𝗮𝗻𝗮𝗴𝗲𝗺𝗲𝗻𝘁:
1️⃣Direct Procurement
2️⃣Indirect Procurement
3️⃣Goods Procurement
4️⃣Service Procurement
Procurement, Principles, and Management
Sustainable Procurement: A Practical Guide to Corporate Social Responsibility in the
Supply Chain
Spend Analysis: The Window Into Strategic Sourcing
Bad Buying: How organisations waste billions through failures, frauds and f*ck-
ups by Peter Smith
Profit from the Source: Transforming Your Business by Putting Suppliers at the
Core by Christian Schuh, Wolfgang Schnellbacher, Alenka Triplat, Daniel Weise
Most Used Supply Chain & Procurement Terms:-
RFQ :- Request of Quotation
RFP :- Request of Proposal
RFI :- Request for information
CBA :- Cost Benefit Analysis
PO :- Purchase Order
PR :- Purchase Requisition
JIT :- Just In Time
SPE :- Supplier Performance Evaluation
SLA :- Service level Agreement
ROQ :- Reorder Quantity
BOM :- Bill of materials
TCO :- Total Cost of ownership
MRO :- Maintenance Repair and Operations
SRM :- Supplier Relationship Management
COGS :- Cost of Goods Sold
MOQ :- Minimum Order Quantity
KPI :- Key Performance Indicator
FOB :- Free on Board
PPV :- Purchase Price Variance
OTD :- On Time Delivery
MRN: Material Requisition Note
NCR: Non-Conformance Report
UPH: Units Per Hour.
BOM: Bill of Materials
ERP: Enterprise Resource Planning
SOP: Standard Operating Procedure
MRP: Material Requirements Planning
WIP: Work In Progress
TAT: Turnaround Time
OEE: Overall Equipment Effectiveness
TQM: Total Quality Management
PPM: Parts Per Million
JIT: Just-In-Time
FIFO: First In, First Out
KANBAN: Card or Signal System for Workflow
SMED: Single Minute Exchange of Dies
PPC: Production Planning and Control
KPI: Key Performance Indicator
SPC: Statistical Process Control
TPM: Total Productive Maintenance
QC: Quality Control
CNC: Computer Numerical Control
MRO: Maintenance, Repair, and Operations
Non IT commodity Means
