Businesses in search of working capital usually think of looking “outward,” but many organizations can find their best opportunities by looking “inward” to free-up significant cash.
Expenses come in many forms—administrative costs, process costs, indirect procurement, and financing costs, to name a few. Opportunities to control these costs exist in every organization, and by following the adage “a penny saved is a penny earned,” business leaders can liberate substantial working capital.
Taking the time to audit the competitiveness of supplier programs is nothing new for a procurement leader, but greater savings can be found by considering the bigger picture of how a business handles a purchase from start-to-finish. Are you utilizing e-procurement to drive program compliance? Is your supplier cooperating with the e-invoicing process in place with your AP department? Are the payment terms negotiated with the supplier in line with finance’s cash flow objectives? Everyone from IT to finance and accounting must align themselves to a holistic, efficient purchasing process to unlock considerable cost savings.
Savvy organizations see procurement, IT, finance, and accounting as integral parts of any overall cost-savings solution. Consider the power of having your spend data available for monitoring and analysis. This data can be put to work by procurement professionals in supplier negotiations, by budget-makers for more accurate forecasting, by IT developers in building useful e-procurement tools, and by warehouse managers for smarter inventory management. But none of this is possible if IT isn’t building the e-commerce tools necessary to capture spend activity, or if accounting keeps this data tucked away in a secret folder.
The importance of open, collaborative relationships within your organization cannot be overstated, nor can the numerous ways that they can lead to greater savings. For example, procurement managers aren’t in a strong position in supplier negotiations if accounting hasn’t kept payables in good shape. At the same time, accounting is beholden to procurement to contain the size of the supplier base to minimize administrative expense. Accounting also depends on procurement to negotiate reasonable terms and only committing to buy an adequate supply of goods to mitigate holding costs and shrinkage.
No unit of your business works in a vacuum. Smart business leaders should look inward, foster collaborative relationships, and tap holistic savings as your best undiscovered source of working capital.