Strategic Procurment - What the Experts Say

Debbie Long, LBMC Vice President Procurement Services   (August 14, 2018) - Excerpts from:

Businesses are saving tons of time and money with Procurement Services

 With a majority of CEOs viewing cost-reduction initiatives as a top priority in 2019, there is a growing trend in organizations to scrutinize expenditures more closely by outsourcing to procurement solutions providers as a way to better manage costs and expenses.

And no wonder — some estimate that most companies waste as much as 30% of their expenditures. These expenditures are deemed wasteful because they fail to impact customers. At the same time, it is vital that companies have appropriate systems in place and cut the right costs through strategic reductions that don’t impede their ability to grow and remain competitive.

As a recent Forbes article noted, “A business without good systems is, in the end, not sustainable.”

Strategic procurement is one of the most effective ways to positively impact a company’s bottom line, but many businesses lack the resources and expertise to optimize their procurement capabilities.

As a result, companies without current dedicated procurement resources, or that have a minimal amount of internal category expertise, may remain loyal to suppliers year after year without objectively assessing costs and end up paying higher prices than necessary. 

While a group purchasing organization (GPO) can be useful in helping companies realize savings through economies of scale and supplier management, GPO’s provide very limited services.

New procurement solutions models go much further, offering options ranging from fractional resources that are applied based on an organization’s budget and resources, to serving as an organization’s long-term procurement partner by helping with sourcing, request-for-proposal documents, contract management, auditing services, negotiating with suppliers and more.

These services pay for themselves and provide quick, measurable wins. Based on my experience, a typical return on investment is around 300% when comparing savings to the costs.

How do you know if your company — regardless of its industry — could benefit from outsourced procurement?  Here are five key questions to discuss with your financial team:

Is there control around the company’s spend? If there are multiple suppliers or sources being used for similar categories or a single area of spend, that usually is a signal there is an issue with expense management.

 Is there a formal process and a team of individuals who look at the spend or the expenses of an organization and evaluate whether their suppliers are providing the best possible value?

- Are there metrics for cost efficiencies and savings?

- Are there standards around the products that are purchased?

- Is there a vice president or equivalent leader in procurement who is part of the decision-making process? (An individual at that level is essential to a formal procurement process.)

- Procurement solutions experts can bring value and drive efficiencies through the overall bidding and buying process as well, along with control and sourcing. The result is substantial savings and a true procurement partner that helps an organization grow in scale.

- Measurements, benchmarks, analytics, spend analysis and reporting are all tasks that lend themselves to efficiencies around the expense side of a business and enable companies to get expenditures under control. Getting into the control environment and truly managing the supply base by establishing procurement and purchasing process — along with standardizing, simplifying and consolidating specs — are keys to driving a best-in-class procurement system.

They turn passive participation in a GPO into an active effort to bring all needed items under contract and control, effectively becoming an organization’s aggregated procurement partner.

One of the biggest surprises many of our clients experience is the customized solutions suppliers offer. For example, one of our suppliers guided a startup-size client in getting its ordering process up and running, helped the company vet new and innovative products and created an online order portal. This startup could never have envisioned all that on their own if they had tried to do those tasks themselves.

The first step for any organization seeking to optimize its procurement efficiencies and savings is to have a conversation with a procurement solutions provider. This starts the process of discovering where a business may have issues around its budget and identifying ways to save costs.

Improvements to the bottom line can come in hard savings based on a cost-to-cost comparison or soft savings in efficiencies, technology and reporting. Strategic procurement, however, goes beyond just saving money to creating innovative processes that improve a company’s operations and efficiencies, and position it for long-term success.

Purchasing and Procurement Center, excerpts from:

Outsourcing Procurement – Benefits vs Problems

Outsourcing procurement is often undertaken by very large companies to save money.  Procurement requires a great deal of focus on cost saving, profit maximization and compliance. Often good procurement strategies can be the difference between a profitable company and a failed business. 

Some companies such as Amazon, Tesco and Walmart have made their purchasing strategies a competitive advantage.  Procurement can be very complex and cost consuming in many large companies so some of them are outsourcing procurement rather than build their own world-class procurement capabilities.

A procurement outsourcer can leverage their economies of scale and have the experience and trained staff that cut costs and enhance efficiencies.

Smaller companies that have experienced growth spurts and have few internal purchasing resources are also outsourcing procurement to take advantage of external structures and expertise.

Others that do not have the market leverage to obtain good discounts or the expertise to find good suppliers or purchasing staff are also turning to outsourcing procurement.

Some of the benefits that can be gained are:

- Cost reduction from head count, training, office space and computerization.

- Market leverage allowing for better discounts.

- Transaction cost per purchase are lowered by economies of scale.

- Marketing knowledge of which suppliers are best for each product to be purchased.

- Highly skilled staff that specialize in purchasing.

- Improved communication between purchasing experts and the company staff.

- Better management information and purchasing analysis is available for people who understand the purchasing environment.

- Negotiation by an expert in the field is often more effective and profitable.

 Benchmark for Savings

We save our clients so much money on their lab supply purchases, we need to provide detailed reports just so they believe the numbers!

Our typical clients save between 25% and 50% or more during their first year with Lab Procurement Services.

These unbelievable savings come from a combination of vendor research, direct from manufacturer sourcing, volume discounting, and brand substitutions.

Even though our "hard" costs savings are significant, there is often even more savings in time spent researching products and pricing, order and accounts payable processing. Unfortunately it is harder to quantify these "soft" costs. We encourage you to use our ROI tools to estimate these soft cost savings for yourself, but we are quite confident that our lower prices and quantifiable hard cost savings will be more than enough to prove the value of our services!

Contact Us for a Free Consultation Now!

 Custom Lab Supply Management Portal

 Our procurement services clients are set up with a customized management portal that lists all of the items you purchase and lets you track inventory and place re-orders using a simple interface.

The portal is designed specifically to track lab equipment, supplies, chemicals and reagents. It includes location data, expiration dates, MSDS, protocols and other documents related to each item.

Common re-orders are saved for 1-click processing, and your portal only shows the items you purchase.

Our lab management portal is vendor-independent, so you can order any item from any supplier from the same website.

The lab management portal is just one of the many cost-saving technologies we employ to streamline your procurement process and lower your cost per order!

 Paperless Procurement

Lab Procurement Services provides document scanning, data entry automation and EDI solutions to streamline the procure-to-pay process, as well as other document-based tasks in the lab. 

Our technology partner, ScanStore, has been a leading document management solutions provider for over 15 years. LPS and ScanStore work closely together to tailor our document and data processing solutions to the needs of the laboratory market.

The procure-to-pay cycle is a very paper and data intensive process. A very large part of the cost of purchasing, receiving and paying for lab supplies is due to creating, handling, storing and entering data from paper documents. Any part of this process that can be automated with an electronic document, digital signature or automated data capture can save your lab money on every transaction. When these small savings are magnified across every purchase you make, the ROI becomes quite significant.

The holy grail of automation is EDI or Electronic Data Interchange. EDI is usually available from larger vendors that you do a high volume of transactions with. EDI eliminates the exchange of paper documents in the procurement and accounts payable processes, eliminating the handling, storage and data entry costs completely and adding data directly to your accounting system. ScanStore developers work with your IT staff and your vendors to guide you through the process, develop the necessary interfaces and data transformations, implement and stress test the interface.

 Laboratory Document Management Solutions

Some examples of document management and business process automation solutions that we have provided for our clients.

MSDS & Certificates of Analysis

Create a fully searchable database of Materials Safety Data Sheet and Certificate of Analysis documentation, letting you instantly locate the documentation for any item based on CAS number, description, or any keyword within the text of the document. Access them from anywhere on your network, email or print on demand.

Vendor Quotes, Contracts

To ensure that all your buyers are using the latest pricing and vendor contract information, we provide version-controlled document repositories with standardized filing schemes. Each new price list and contract is uploaded to the repository, replacing any existing versions in the search results while still allowing the user to browse all previous versions of each document.

Lab Reports

Provide a secure document portal for your clients to logon and retrieve completed lab reports and archive your old reports automatically. Instead of sending lab reports over insecure email or ancient fax, give customers direct access to their results through a web portal or cloud-based storage solution. 

Invoices

Automate accounts payable processes by using invoice processing solutions to automate all of the data entry involved. Capture header information like vendor, invoice number, dates, amounts and shipping address, as well as line item information like part numbers, quantities and subtotals. Automatically import this data into your accounting software for payment.

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