When sourcing new suppliers, it can be a stressful and complicated process. However, if done right and with careful consideration, it can bring about great and positive changes for your business.
In this article, we’re going to take a closer look at budget considerations when you are sourcing new suppliers, for your convenience. But first, why do you need a procurement budget?
Why do you need a procurement budget?
- Influence your purchasing strategy: When a procurement budget in place you will better be able to determine what you can and cannot afford, depending on the budget that you have previously set out. It’s easy to get carried away when searching for new suppliers, but it’s better to be strict and realistic with what you should be spending.
- Provide warnings when your finances become unstable: With a procurement budget it is much easier to identify when over-spending occurs, which could negatively affect the overall procurement process and lead to other unwanted problems down the line.
- Promote transparency across all departments: If you want all departments to be accountable for their own finances then having a clear and solid procurement budget ensures transparency across the board. That way, it’s easier to identify which departments are failing and which areas need improvement.
- Effective management of procurement finances: A clear budget enables you to properly allocate the appropriate resources to your procurement projects.
- Better insight for easier decision making: Collected data from your procurement budget (i.e., spend trends) will enable you to make much better purchasing decisions in the future.
A procurement agency’s tips for setting your procurement budget
Identify the goods and services you definitely need
The first and most important step in the procurement process is identifying all of the goods and services that your business requires to operate. This can be anything from office furniture and supplies, computers, or the very goods that you sell to your customers. Put together a comprehensive list and start planning your budget from there.
Research all of your vendor options
Next up you’ll want to look at your potential vendors. Naturally, you’ll want to be looking at vendors that offer a good price, have a solid reputation, and are renowned for quality customer service, coupled with a faster turnaround time. Yes, it’s stressful having to nurture and negotiate with potential vendors, but with some time, effort, and research, your business can greatly benefit.
Encourage buy-in from stakeholders
When budgeting for procurement, it helps to request buy-in from finance, accounting, and C suite. With such stakeholders getting together and drafting a plan, it helps to identify any savings that procurement makes. That, and it promotes legitimacy and credibility for the procurement budget itself.
Stick to the budget!
Always incorporate your available budget into the purchase requisition process. Whoever handles the purchasing should be well-aware of the available budget for a given item in order to speed up the process. It also helps if the purchasing officer can let the vendor know what you are willing to spend on said goods. Set the budget and stick to it!
Leverage new technology and automation where possible
In this day and age there is no reasonable excuse to justify ignoring the many valuable budgeting tools available. There is plenty of innovative software out there enabling you to create and maintain your procurement budget, whilst also controlling your spending with great accuracy and undeniable efficiency.
Combining these evident advantages with spend tracking features such as approval workflow and purchase requisition will allow your procurement officers to maintain a holistic view of the entire process.
In most cases, whoever is in charge of handling the procurement process doesn’t have a say in what the budget is. Thus, in order for them to make the best of the budget allocated to them, it helps to provide them with suitable tools that will both make their jobs easier and allow them to be more self-reliant in their role.
Additionally, managers and stakeholders can easily use these tools to track the process without the need to micro-manage procurement officers
The Takeaway
Just as any business budget, a procurement budget (when calculated properly) can have many positive outcomes by offering valuable insights for the following:
- Decision making
- Controlling spending
- Promoting accountability
- Informing the purchase strategy
Setting a procurement budget isn’t a quick and easy process. Which is precisely why using a quality procurement software can make the process infinitely more efficient. Doing so can even help to improve your supplier relationships and maintain better control over your spending!
