Procurement departments play a fundamental role in the success of an organization's supply chain management. Sourcing professionals manage the requisition process, aiming to secure the lowest possible prices and terms from suppliers. By ensuring the efficiency of the purchasing process, you can help the organization adhere to its budget and reach its financial goals. But these endeavors can be challenging, especially if your supplier options are low or the suppliers are not dependent on your business. Nonetheless, there are still several effective ways to increase your organization’s procurement purchasing power.
6 Proven Ways to Raise Your Purchasing Capacity
Your organization's procurement purchasing power affects your ability to obtain discounted goods and services from suppliers. Typically, the more items you purchase, the more competitive the supplier’s pricing will be. But since most SMEs have relatively low order volumes, it can be challenging for procurement professionals to negotiate discounts. Fortunately, buying power can be increased in the following ways.
1. Conduct a Spend Analysis
Before implementing new strategies, it helps to gain a baseline understanding of the company's procurement data. This step leverages supply chain data to analyze overall spending and vendor relationships and identify savings opportunities.
Start by collecting organizational spending data from procurement software, ledgers, and other sources. Compile the information into a single database and categorize suppliers and spending data. Then, analyze this information to identify savings opportunities. For example, you might discover contracts with multiple suppliers owned by the same parent company. In these cases, you could aggregate this spending to increase your buying power.
2. Consolidate Purchase Spending
You can increase your procurement purchasing power through spend consolidation. After auditing your spending data, you might discover some departments in your organization that purchase similar products or services from different suppliers. For example, your company might have in the city several locations that buy office supplies from different companies. You can eliminate duplication and increase buying power by combining these contracts into one. Increasing order volume allows you to negotiate better deals and gain discounts.
3. Plan Purchases Strategically
Improve your procurement purchasing power by adjusting the frequency and volume of your orders based on your company's past purchase data. To do this, leverage supply chain data to find patterns in demand and make strategic plans for future purchases. For example, your company might have cyclical purchases that can be consolidated at a larger volume and with less frequency.
Buying in bulk gives you more room to negotiate with your suppliers. Moreover, reducing the number of transactions while maintaining or increasing overall purchasing volume increases your value as a customer from the vendor's perspective.
4. Leverage the Power of Many
Joining a group purchasing organization (GPO) is one of the best ways to increase your company's buying power. GPOs combine the purchasing power of several companies to help you get the best deals in the industry. High-order volume encourages vendors to provide discounted pricing to GPOs. For example, providers save up to 18% in supply chain costs in the healthcare industry by buying through GPOs.
5. Keep Negotiating
Improve your negotiating tactics by learning about your suppliers. Find out what drives their costs, the markets they serve, and their current competition. Use the information to determine your organization's value to suppliers and increase your procurement purchasing power.
For instance, you may be in a better position to negotiate favorable terms with up-and-coming suppliers who face stiff competition from established rivals. Providing larger deposits on orders, paying supplier invoices on time, and maintaining a positive relationship with your suppliers are all ways to obtain better rates.
6. Open New Markets
Increase your organization's procurement purchasing power by allowing your suppliers to enter untapped markets in exchange for discounts and better deals. For example, your company may expand to a new location or create a new product line for a different market. Finding out what kind of opportunity is valuable for your vendors requires research. You can make the deal harder to resist by lengthening the contract to reduce their risks.
Increase Your Organization's Buying Power with CenterPoint Group
Increasing your company's purchasing power in procurement helps your organization meet its financial goals and grow its bottom line. CenterPoint Group is your partner in enhancing procurement efficiency and cost-effectiveness. We are an industry-leading group purchase organization and procurement adviser that leverages the power of technology, data analytics, and negotiation to optimize the purchase process. Reach out today to learn how we can help you create leverage with suppliers and increase your buying power.