A Few Purchasing Strategies to Make Any Business Profitable

2022-06-07

IST_24519_20056.jpgIntroduction

The purchasing strategies of a procurement service provider must include correctly recognising, evaluating, and involving suppliers in the acquisition of any service or items. This is a critical role that necessitates exceptional abilities.

Purchasing abilities are used by the sourcing Asia agents to make a cost-effective purchasing decision from probable vendors. The latter will offer high-quality products on schedule and within the agreed-upon criteria.

What should be the strategies a Chief Procurement Officer?  What should he employ before embarking on a sourcing project?

We will discuss on the subject of purchasing strategy that should be adopted by any company to be profitable in their business under the present scenario.

The Truth About Business Growth

The whole world came to an almost standstill due to the outbreak of COVID-19 last year that has caused many global corporations to explore expanding their supplier base beyond China.

The contract manufacturer of Apple that is Foxconn, has got its operations in China, recently announced efforts to diversify sourcing in order to improve supply chain resilience, joining the likes of Mazda and Samsung.

Taiwan Semiconductor Production Co., which is another Apple supplier, has planned to develop a manufacturing factory in Arizona to develop an alternative to sourcing in place of China and directly supplying US customers.

Impact of COVID-19 Pandemic on Sourcing

Even before the pandemic, some corporations, particularly in Europe and North America, that were completely reliant on China, started planning to diversify their supply. Some people explored reshoring, which is the practise of returning a portion or all of the manufacturing and services of the company to its original site.

Growing protectionism adopted in the form of rising labour costs, trade tariffs, and concerns for environmental sustainability all contributed to this.

However, the ongoing pandemic has highlighted the various flaws in supply chain for global sourcing and lack of manufacturing self-sufficiency in various countries.

This became clear when it came to obtaining key medical supplies e.g., personal protection equipment, ventilators, and pharmaceuticals, all of which are produced mostly in China.

Although China recovered from its production shutdowns sooner than expected, it had a knock-on effect on trading partners who faced product shortages and delays.

Moving out of China will not improve the performance of all industries. As per the built-in expertise and surplus raw material capacity that the existing geography provides, moving to some other geographies again may not be very wise for certain sectors.

Before making any changes to core purchasing strategies, it is also important to assess the strategic importance of specific industries.

Because of their less complex supply chain and the presence of many source countries, medical devices and pharmaceuticals may benefit from diversified sourcing more than clothes, consumer electronics, daily hardgoods, tools and accessories.

Although for most of the businesses, the choice of another sourcing market to China will be based on manufacturing competence and supply chain demands. Brazil, Mexico, India, and Vietnam appear to be popular choices.

For effective sourcing diversification, clients must examine strategic geographic locations, their appetite for risk, and also the level of collaboration needed with new providers.

Trends In Sourcing and Procurement

As the next year is just around the corner, forward-thinking Chief Procurement Officers and their teams are making purchasing policies for the coming year. The following are four significant procurement trends to consider in the purchasing strategy.

1. Increased volatility

Market volatility might reach an all-time high during the next 12 months, because of rising trade tariffs and barriers, fluctuating commodity prices, and the unpredictability of Brexit.

Finding solutions to control this risk must be always the top priority of the next year as already complex global supply networks grow increasingly more unpredictable.

What does this imply in terms of application? It requires putting mechanisms in place to follow suppliers, anticipates difficulties, and handle commodity-related volatility, at the very least.

Forward visibility also related market intelligence that can always be turned into insights and actionable actions form the foundation.

Furthermore, investments in analytics, as well as predictive modelling, can be quite beneficial in these areas. In fact, there are technologies built particularly to assist procurement organisations in anticipating change and coping with disruption.

2. Ongoing digital transformation

There is a good likelihood, we will be discussing digital transformation for a long time to come. This is because true digital transformation is a continuous activity.

Digital has quickly become a must for high-performing procurement departments. Those that fall behind will have to catch up this year, especially since the rest of the company is most probably going to adopt its own journey for digital transformation.

There is currently more technology geared at centralized purchasing strategy than ever before.

Perhaps the most difficult element is deciding which tools to use and whether to go with end-to-end services or a certain mix of best-of-breed solutions. It will go without saying that the focus should be on the value of technology rather than the technology itself.

What is best for your company will be determined by your unique circumstances. In general, we anticipate significant investments in expenditure analytics, contract management, SRM, and risk management technologies in 2020.

A focus on data should underpin this: clean, high-quality data, great visibility, and the capacity to manage and go deep as needed.

3. Building deeper supplier relationships

You have almost definitely had a discussion within your department regarding improving supplier relationships at some point. It is widely acknowledged as a strategic goal for procurement organisations. However, it may not be as easy to put the whole plan into action.

Procurement departments frequently use manual methods that are uneven between categories and supplier segments. However, we expect the more forward-thinking and progressive departments to develop more structured and successful purchasing strategies in the coming year.

The first step in this strategy will be to divide suppliers into tiers, distinguishing those who are a critical element of the whole supply chain and thus truly strategic from those who are not.

The next phase will be to establish a set of measurements and tools meant for each tier, allowing for improved monitoring of strategic partners and the improvement of relationships as needed.

You must hear this concept before, but the difference now is that we have the technology as well as analytical capabilities to make the essential processes both doable and cost-effective.

The ideal outcome will be broader and more innovative partnerships that encourage deeper customer-supplier connection.

4. Delivering value beyond savings

The primary goal of procurement will always be to save money. Procurement businesses are increasingly recognised for providing value that extends beyond cost reductions, cost management, and cost avoidance.

Over the last few years, the sophistication of the purchase and procurement function, as well as the available expertise in the field, has skyrocketed. In general, there have been more expectations placed on selling, and general administrative functions.

With C-level strategies calling for more growth, tighter budgets, faster innovation, and increased competitiveness, the coming year will be the year for procurement to demonstrate how it can help achieve larger strategic goals.

It is now the moment for procurement to shine. Procurement organisations can achieve this in a variety of ways, including enhancing project delivery speed and income through new supplier-enabled initiatives, as well as directly participating in the innovation of enterprise to assist influence activities early.

Centralized Purchasing

While developing purchasing strategy there must be a purchasing system where all departments of a corporation with a large geographical dispersion can make procurements through a certain common purchasing organisation.

Simply said, a centralized purchasing strategy is the acquisition of all necessary goods and services by any single department for all the branches of the company. A buying manager is usually in charge of that department.

Centralized procurement is advantageous in locating the best prices with local suppliers for the corresponding company department location. It not only helps to minimise duplicate orders, but it also promotes the benefits of big volume bulk savings, as well as lower transportation and expenses of inventory management.

IST_24519_19891.jpgPros and cons of centralized purchasing

Pros:

1. Overhead expense reduction

The first and most essential benefit of centralised purchasing is that it lowers the overhead expenditures of the company. Different facilities necessitate not only separate leasing agreements, but also separate insurance policies, utility deposits, security features, office equipment, and network connections, among other things.

2. Better relationships within the company

In the recent years, interpersonal communication has been continuously ranked as a critical criterion for achieving successful work performance in businesses. The strength of a team comes from its ability to communicate effectively.

The atmosphere is considerably more pleasant in a centralised workplace, where managers and employees have the chance to connect in person, than in departments where co-workers speak via telephone or e-mail.

Employee productivity and teamwork are increased when company meetings, conferences, also training seminars are done in a group format.

3. Advanced control

In a centralised office, management teams may be more efficient and cost-effective. Due to the lack of regular interaction with employees, managers who are frequently absent from the workplace or spread out among multiple departments are typically less successful.

4. Team cohesion

Employees that work as a team learn to know the work styles of one another and approaches as if they were their own. As a result, such groups are usually better at working together on tasks.

Employees operating under a similar brand development set and customer service directives in a single office boost the capacity of the company to be consistent across different channels.

5. Saved money

Many cost-cutting benefits come with centralised purchasing strategy. Purchasing managers can save money by buying in bulk, better managing inventories, and assessing corporate needs.

Furthermore, unified procurement eliminates the need for individual managers for each location. It is self-evident that adding duplicate staff roles will result in increased costs. Fortunately, you need not worry about it with centralised purchasing.

6. More benefits

We can include avoidance of duplication, time savings, knowledge resource sharing, decreased transportation expenses, enhanced specialisation, stronger relationships with buyers, and uniformity in procurement policy as some of the other main benefits of centralised procurement.

As we can see, having a centralised office allows management to save money, stimulate better communication among employees, and increase overall operational efficiency.

Cons:

  1. Complex corporate management if the corporation is too huge

  2. Problems with replacing damaged materials in a timely manner

  3. High risk of delays - requisitions for items are frequently sent from far locations

  4. Purchase of products from local providers is difficult in the event of an emergency

  5. If branches are in different geographical locations, centralised purchasing is not appropriate.

Purchasing Strategies to Adopt

The nine core purchasing strategies that every Chief Procurement Officer must employ to reduce costs, improve quality, and ensure that goods are delivered on time are listed below.

1. Supplier optimization

The selection of a solid mix of a few efficient vendors is a critical stage in supplier optimization. The vendors are chosen with the goal of providing the specific items that the firm requires to meet the requirements of its potential clients and expand globally.

Suppliers must also meet the requirements for both ample quantity goods and a competitive price. They are weeded out of the list if they are unable to do so.

2. Total quality management

This is a frequent method for businesses to maximise product supply. The TQM method benefits the company in two ways:

  • It can improve the quality of the product

  • It lowers the overall cost of getting supplies.

This can assist the corporation in lowering the cost of purchasing the product to boost the cut-price margin to customers while still retaining their profit margin.

3. Centralized purchasing

This purchasing strategy can be used efficiently by sourcing certain Asia agents to reduce the quantity of money and items wasted. This is because all the products will be acquired from a single site.

Furthermore, because there are fewer factors influencing product purchases and fewer vendors supplying the products, it can optimise product supply.

4. Risk management

All companies and businesses work in an unpredictably volatile environment. The elements that are driving the uncertainty range from how the firm will operate to how the markets will perform in the interim and in the next years.

Several factors can disrupt supply networks, necessitating ongoing risk monitoring by the organisation to determine, which risks will be worth taking and which ones are not.

Other dangers include probable worker strikes, supply chain concerns, and other inventory problems. These dangers can develop at any time throughout the functioning of a company. CPOs can overcome these risks by managing them through effective studies and tactics.

5. Global sourcing

A CPO may discover that producing and sourcing a specific product in a foreign country is less expensive. This is when international sourcing comes in handy. This technique enables the organisation to reach out to some other countries to obtain the products it requires at a fair price.

When a corporation cannot locate easily available resources at reasonable prices in its own country, it looks to other parts of the globe. As things are transferred between countries all over the world, this permits the economies to become interwoven.

6. Vendor development

The corporate world is a very competitive place. This is true not only for enterprises around the world but also for vendors.

Vendors are also expected to expand their talents and offer certain cost-effective items to business owners in this fast-paced and advanced environment where business owners are searching for better products to satisfy their clients.

In this competitive environment, companies who seek constantly improving providers who are likewise willing to supply first-class products are gaining an advantage. Such enterprises and businesses can distinguish themselves by providing consumers with better items.

7. Focus on quality

Companies are required to purchase their items from vendors who are committed to providing the finest possible service. People in a world where the cost of living is consistently rising know about every dollar they spend.

For the money people spend on the products, they expect top-notch quality. As a result, choosing vendors that can supply high-quality products can boost sales and ensure that customers are encouraged to return whenever they must buy something.

8. Continue negotiations

A CPO should get in touch with vendors on a regular basis. As a result, customers will be able to receive the greatest prices for the things they wish to buy. As the cost of manufacturing items drops over time, most vendors will be able to offer better rates for the products that are available to businesses.

As a result, it is preferable to conduct regular negotiations with vendors to always ensure the greatest pricing and top-notch quality items.

9. Green purchasing

IST_18896_61860.jpgNowadays, the green purchasing strategy is becoming increasingly popular these days. The businesses are attempting to transition to a green goods production approach. Another fantastic shopping approach is to recycle products that have any negative environmental impact and then purchase them at a certain lower cost.

This benefits, not just the government, but also consumers who will opt for things that have not been demonstrated to be as healthy for the environment.

These are the nine basic purchasing tactics that any CPO should employ to provide businesses with high-quality items that allow their owners to operate their firms to their full potential. These techniques are effectively followed by the CPOs of Asia sourcing agencies to ensure that your company gets the finest of the best.

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