The past couple of years has stirred up a challenging economic cocktail for businesses: rising interest rates, inflation and pessimistic venture investor sentiment. As a result, companies are in a squeeze to increase profitability, often by lowering burn rates and boosting revenue — no small feat in an uncertain economy.
Lowering the burn rate is an attractive proposition for many executives. However, making steep cuts in cost areas like headcount, rent or production can have negative downstream effects on efficiency and productivity.
Instead, companies should tap into an often-overlooked resource: their procurement and finance teams. Leveraging real-time budget data and increased transparency, procurement can lower burn rates by streamlining processes for the entire organization.
Let's dive into three strategies procurement teams can adopt to combat inflation and enhance efficiency:
1. Increase cost efficiency via vendor visibility
Procurement teams excel at sourcing the right vendors and negotiating favorable terms for their organization. But these gains are ineffective if the wider organization isn't aware of them, often leading to unnecessary spending.
For example, suppose a company has secured great rates with a SaaS vendor, and employees are using a different vendor for their software needs. In that case, the procurement team's hard work on the partnership goes to waste, and software costs go up. These pre-negotiated relationships must be transparently shared with the entire organization so employees can see which vendors are preferred and available.
2. Culture of spending accountability
Having duplicity or redundancy in vendors can create inefficiencies in other business areas. Between contract reviews with the legal team, privacy and security review with the IT team and managing the relationship with the vendor, these checks and balances take time. Why spend hours managing a tool across multiple teams when procurement already has a relationship with another vendor offering the same service? It's imperative that procurement promotes a culture of spending accountability, which hinges on data transparency.
3. Real-time budget data
Beyond contracts, teams must also know their budget utilization in real-time. It sounds like a given in many organizations, but it often isn’t and requires FP&A teams to share data, delaying the process further. When budget owners can instantly see committed contracts, requested budget items in-flight and details on the remaining available budget, they can make smarter fiscal decisions.
Process efficiency leads to direct and indirect savings
Efficiency in processes equates to direct and indirect savings for the business. Procurement processes that require employees to complete complex forms or make multiple phone calls increase the time it takes to get from point A to point B. Simplified procedures save man-hours, and indirectly save money. When procurement teams make pre-negotiated contracts easily accessible and implement spending accountability, employees can concentrate more on the roles they were hired to do rather than on contracts.
When procurement teams effectively source vendors, negotiate favorable terms and share this information transparently with their teams, the business sees direct savings. Procurement teams often get stuck engaging with vendors and chasing documents. Still, the real game-changer comes when companies pause and establish new processes that positively impact the company’s bottom line in the long run. This can be a vital link to a business's success in a time of inflation.
