Many department decisions have an associated cost associated with them, often resulting in the procurement of the best deal in terms of the total cost of the good or service. This Total Cost of Ownership (TCO) not only covers the price that is paid for the product or service but the cost and effectiveness for your business infrastructure and development, as well as its cost to maintain and manage.

Procurement will look into the running costs of the organisation, in addition to capital expenditure. And with research indicating that non-pay expenditures such as the ones listed previously account for around 30-40% of the total expenditure, it is important that your budgets and costs are managed, reviewed and debated on a regular basis to meet the needs of your business and the developing marketplace and environment. Procurement, when conducted efficiently, can add brand value and prepare the business for fundamental changes that enables healthy profit and an effective business. Procurement not only offers short-term gains but long-term contributions to the success of the business, particularly as regular reviews of your suppliers can ensure that they are truly meeting the requirements and expectations of your business. If they are not, a suitable alternative can be placed; after all, they are an extension of your organisation.

Within business, procurement management is a strategic function that allows companies to meet objectives effectively and efficiently. The management of costs ensures bottom lines stay low, but quality and requirements are still met, whilst also allowing business processes to be streamlined and deals with the best suppliers for the organisation to be arranged. It is not all about focusing on the money coming into your business (revenue), but also considering the money that goes out (expenditure). Unfortunately, businesses who focus solely on sales see other business processes which are equally important neglected in the process. Other organisations may have procurement processes in place, but it is often the case that these are outdated or do not reflect the current needs of the business.

However, businesses in the private sector are now beginning to see the significance of procurement, particularly as businesses face higher prices for goods in light of increased rates. For those in the public and third sector, there is an essential need to demonstrate that the funds provided by the public (tax-payers, contributors or the like) are accountable and best placed to meet organisational goals. It is imperative that they effectively and strategically manage their costs, particularly if funds are limited. Many organisations are turning to expert procurement companies to secure substantial savings in a number of areas and improve their return on investments (ROIs).

To recap, why is procurement necessary for businesses?

  • Procurement looks at the TCO of products and services to ensure the most cost-effective and suitable options are selected for the organisation.
  • Procurement allows businesses to shape better strategies (by departments and as a whole) for business expenditure and budget assignment.
  • Effective procurement ensures that focus is placed not only on sales but other, equally important, business processes.
  • Procurement allows for not only short-term gains in savings but long-term successes and business sustainability.
  • Ensuring your suppliers add value to your business and not added cost or damage.

Get in touch with us today to discuss more about the importance of effective procurement in your organisation and discover how we can secure substantial savings for your business across a number of areas.

Article by: Barry Donovan