Procurement teams are constantly seeking new ways to optimise their operations and drive financial performance. This can prove difficult, as the process is often plagued by inefficiencies, but the simple solution to these challenges is to manage spending through e-procurement tools. By leveraging digital platforms, procurement professionals can improve cost-saving capabilities and enhance process efficiency.
Here’s why financial efficiency in procurement is important, the biggest challenges of manual cost optimisation and how to address them with software.
Why is financial efficiency important?
With inflation rates currently sitting at three per cent, cost optimisation has become the top priority for procurement teams in 2024, with a survey revealing that 65 per cent of UK procurement departments consider cost control to be the most important focus. Economic uncertainty is the biggest influence in achieving financial efficiency, as ongoing global economic concerns and fluctuations are putting businesses under increasing pressure to maximise cost savings and optimise resources to build resiliency and remain competitive.
Inflated prices are also impacting the costs of materials, labour and operational expenses, heightening procurement teams’ urgency to find more innovative means of cutting expenses and improving financial performance. The procurement sector is becoming increasingly digitised thanks to the development of Artificial Intelligence and automated systems, and this acceleration has empowered teams to leverage advanced e-procurement tools and technologies to streamline processes, reduce inefficiencies and minimise costs.
Additionally, supply chain disruption caused by the pandemic highlighted the importance of building agile and resilient supply chains, which is why procurement teams are more invested in financial efficiency to mitigate risks and ensure supply chain continuity in the face of disruption.
Teams are also under pressure from key stakeholders like investors, customers and regulatory bodies to display best practices when it comes to financial performance and sustainability efforts to determine suitability for partnerships. The pressure of high internal expectations compels them to work harder to demonstrate fiscal responsibility and efficiency to meet ambitious targets.
Problems caused by manual procurement cost reduction
Manual financial optimisation has become an outdated and flawed process that can significantly impact an organisation’s efficiency. One of the most significant challenges of manual reduction strategies is their susceptibility to human error, which can result in inaccurate data entry, miscalculations and overlooked cost-reduction opportunities. These errors can also extend beyond compromising the reliability of procurement data by leading to poor decision-making.
These processes are also inherently time-consuming, requiring a substantial administrative effort that diverts resources and attention away from more pressing strategic activities. Research found that procurement and supply chain professionals spend 31 per cent of their time dealing with inefficient manual processes. Lacking efficiency can slow down the procurement function and cause delays that affect overall business operations.
Tracking and analysing spending patterns manually can also become burdensome, as it can be difficult to identify and act on trends or discrepancies quickly. Manual procurement also often lacks transparency, which can lead to inconsistencies in vendor selection and contract management, increasing the risk of non-compliance with internal and external policies and regulations.
The absence of a centralised system equally complicates the consolidation of procurement data across multiple departments, which can hinder effective communications and collaboration. Fragmentation like this can result in missed opportunities for cheaper purchasing and supplier negotiation for better terms. Plus, time-consuming cost reduction efforts are typically more reactive than proactive, meaning issues are addressed only after they arise rather than teams taking steps to prevent them from the beginning.
These weaknesses collectively highlight the need for automated procurement solutions that enhance accuracy, efficiency and strategic decision-making to drive more sustainable cost optimisation, which is why procurement purchasing departments are aiming for a 70 per cent procurement digitisation rate by 2027.
How can e-procurement address these challenges?
E-procurement tools can resolve the key challenges highlighted by manual procurement processes. One of its most significant functionalities that can drive cost savings is the automation of data and calculation entry, which can drastically reduce the likelihood of human errors and ensure decisions are based on accurate and reliable data.
The tool has a multi-stage response feature that gives users the flexibility to ask for new offers on goods and services at different stages of supplier negotiation. This provides more opportunities to negotiate a better price or terms for things like delivery dates and lead times, identifying cost-saving opportunities at every stage of the procurement process.
Automated e-auctions are also able to minimise the necessity for users to waste time going back and forth negotiating with suppliers, leaving more time for teams to focus on more pressing responsibilities, allowing them to get the most competitive price in the shortest amount of time and streamline supplier relationship management.
Procurement software provides a much more efficient and accurate tracking system to help users gain better visibility over their spending and allows you to see all savings achieved from multiple contracts and partnerships.
General reporting dashboards can also provide users with an overview of their request spending and savings analytics, allowing them to monitor data and identify where and how savings are being maximised.
The software’s proactive approach to procurement, with features like customisable workflows and automated reminders, ensures timely and accurate processing of requests for quotations and other procurement activities.
Jack started his career at UBS Investment Bank in London as an analyst in the Infrastructure Mergers & Acquisitions team before spending 8 years in Equity Capital Markets, Equity Derivatives and Structured Financing where he raised over USD 5bn in financing for public and private businesses.
He left UBS as a Director and Head of Strategic Equity Solutions LatAm to become the CEO of DeepStream Technologies in 2016, with a vision to transform the way in which global procurement businesses transacted with their suppliers.