In the latest episode of MetaPod, host Ron Crabtree and guest Anders Lilevik, CEO and Founder of Focal Point, explore the world of procurement and its growing importance in today’s business environment. The episode covers essential strategies to help businesses streamline their procurement processes and reduce risks.
All modern businesses face the pressing challenges of labor shortages, the need for digital transformation, and the pressure to operate more efficiently with fewer resources. Procurement, in particular, is an area heavily affected by these issues, making it a prime focus for improvement.
Anders, with over 25 years of experience for major corporations like Fannie Mae and Citizens Bank, shares a wealth of knowledge on how businesses can overcome these challenges through automation, better data management, and proactive contract oversight. He emphasizes the importance of clarity in spending, identifying cost-saving opportunities, and mitigating risks that often go unnoticed in procurement processes.
A key takeaway from the conversation is the importance of understanding where and how money is being spent. Anders explains that simply relying on accounting data might not provide an accurate picture of business expenses. For instance, IT hardware, software, and services could all be lumped into one broad category, making it difficult to identify areas for consolidation or cost reduction.
By categorizing spending into meaningful buckets – such as separating IT hardware from software and services – businesses can more effectively pinpoint unnecessary expenses or find opportunities to consolidate vendors. This strategy, known as demand management, helps companies reduce redundancy and make more informed purchasing decisions.
Anders introduces the concept of being a “term taker,” which occurs when a business passively accepts the terms of a vendor’s contract without negotiating better pricing or more favorable terms. This can lead to paying higher costs, shorter payment terms, or even assuming unnecessary risks. Negotiating contracts rather than defaulting to vendor terms can lead to significant savings for businesses looking to maximize their procurement efforts.
To avoid this, businesses must ensure they have their own contracts in place, outlining favorable terms for things like payment schedules, liability, and risk distribution. Anders stresses the importance of reviewing contracts carefully, ensuring indemnity clauses and insurance coverage are appropriate for each situation.
Supplier relationships are critical to maintaining smooth operations. Many businesses, however, fail to manage these relationships adequately, leading to risks down the line. Anders discusses the importance of identifying critical suppliers and strengthening those relationships by engaging with their C-level executives and ensuring regulated check-ins. Doing so can prevent disruptions, especially when dealing with key suppliers that are integral to data management or customer delivery processes.
Another important point raised is the risk of concentration. For example, if a business relies on multiple suppliers that all use the same third-party service (such as Amazon Web Services for cloud hosting) it may unknowingly create a concentration risk. In such cases, if that third-party service experiences an outage, the entire supply chain could be affected.
A core theme throughout Anders and Ron’s discussion is the need for businesses to utilize existing technology to streamline procurement processes. Anders advises that many companies already have the tools they need, such as purchase order systems, contract management databases, and accounts payable solutions, but are not fully utilizing their capabilities. Instead of purchasing new tools, businesses should assess their current tech stack and automate processes like contract management and supplier onboarding,
By automating repetitive tasks, such as validating W-9s or checking supplier banking details, businesses can free up valuable time and resources. Anders points out that up to 80% of procurement tasks could be automated, allowing teams to focus on higher-value activities that directly impact the bottom line.
As companies face mounting pressure to reduce costs and improve efficiency, procurement offers a wealth of opportunities for both immediate and long-term savings. If you have further questions or would like to discuss procurement processes, visit getfocalpoint.com or connect with Anders on LinkedIn
MetaPod offers a wealth of knowledge and expertise for operational executives and organizations seeking to optimize their operations and supply chains, as well as common challenges such as digital transformation, the forever labor shortage, and doing more with less. Listen and subscribe today for more insightful and engaging discussions on operational excellence, leadership, growth strategies, and organizational transformation.
With one phone call, email, or clicking a link schedule a time to speak with the MetaExperts™ sourcing expert. You are just minutes away from getting your improvement initiative started or re-energized.
©2021 All rights reserved, MetaOps, Inc.
