Positioning procurement as a strategic function

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Wednesday 26 July 2023 16:44 BST
<p>The right data: Many organisations have accurate spend data on their main suppliers. Most, however, find it much harder to measure tail-spend, which involves significantly more suppliers </p>

The right data: Many organisations have accurate spend data on their main suppliers. Most, however, find it much harder to measure tail-spend, which involves significantly more suppliers

Amazon Business is a Business Reporter client.

Anyone working in procurement will be all too familiar with the need to meet wider company objectives, whether those revolve around delivering financial savings or broader goals such as building stronger supplier relationships or facilitating growth. It’s the ultimate aim for many in procurement; to illustrate the vital work it plays in the business and help the function position itself as a strategic partner.

The challenge, though, is finding opportunities to demonstrate these metrics to the wider business, as well as prioritising these areas among all the day-to-day tasks that need doing. Many organisations will have accurate spend data on their main suppliers, knowing exactly what they are spending and with whom. Most, however, find it much harder to measure so-called tail-spend, which involves significantly more suppliers and a wide range of typically low-value but high-use items.

One way  to bring tail-spend into the fold is directing such spend through an organisation that can accurately record not only what is purchased and how much is spent, but also measure any savings that have been achieved year on year. Amazon Business, for instance, offers Spend Visibility (a Business Prime exclusive), that can help track buying patterns and analyse spend over time to help optimise savings and make strategic buying decisions.

Amazon Business also offers Product Basket Analysis, which allows organisations to compare its hundreds of millions of products and competitive prices with their existing vendors, making it easy to identify savings – and report on them.

Purchasing, though, is not just about finding the lowest-priced items. Negotiating with suppliers is a key part of the role, and Amazon Business’ Request for Quote option enables buyers to request a best price with suppliers for high-volume, single-purchase products. This effectively invites suppliers to put forward their best price on bulk purchases, and can lead to significant – and documentable – savings. It can also help to diversify and develop stronger relationships with suppliers, which could be crucial should there ever be a time when supply chains again become strained, as happened in many sectors during the Covid pandemic.

For items sourced from and shipped to the UK, organisations can also help to improve the business’s cash flow situation by joining the free Amazon Business Single Supplier Program. This not only removes the hassle of dealing with multiple smaller suppliers, but also means the business receives a single invoice for the items purchased, significantly improving efficiency. The Pay by Invoice option effectively creates a credit line for eligible businesses, meaning they can benefit from 30-day payment terms with no upfront interest or fees.

Organisations can also manage VAT invoices on Amazon Business, and can even limit employee buying options to only those suppliers able to provide downloadable invoices. Along with all of the other efficiencies which can come from simplifying tail-spend, one of the most valuable results is the time such improvements can unlock for both procurement and finance teams.

One organisation which has already benefited from using Amazon Business is intelligent data firm AECOM, which was looking for a better system for its 7,000 UK employees. Previously, the company’s system for managing tail-spend products was haphazard, with different teams having their own processes and large numbers of employees purchasing items through personal Amazon accounts using a CITI virtual card.

This meant every transaction had its own invoice, so individual items had to be matched to the CITI statement. In all, the buying process required 16 actions across nine different steps, and there was relatively little in place to control spend.

AECOM opted to use Amazon Business as a punchout option from its Coupa procurement platform. This led to an immediate efficiency gain, with the number of steps needed to buy reduced down to nine actions across five steps. The use of a single payment card, and the ability to punchout from Coupa, has also led to a more efficient invoicing system, with the time taken to place orders and reconcile items cut by more than 70%.

The business has also benefited financially, not least as a result of all items ordered through Amazon Business qualifying for free delivery, which it estimates saves around £22,000 a year. Using Spend Visibility, meanwhile, has helped to bring more control over who is buying items and with which supplier.

Being able to demonstrate not only cost and efficiency savings but also the impact procurement can have towards wider goals can help to raise procurement’s own profile within the business, and that of the individuals working within it. This could include freeing up time in both the procurement function and that of the finance team, building stronger and more durable relationships with suppliers to reduce supplier risk, and proving the ability of procurement to move quickly with any upcoming buying requirements. This provides a solid platform for any company looking to grow, and one that has the procurement team right at the heart of it.

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