Best Practices in Procurement Compliance

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Procurement compliance has become an essential best practice for the success of businesses all over the world. Technology has made purchasing an efficient and cost effective process; however this has come with some negative effects as well.

Now most companies spend a large portion of their revenue on procuring supplies, technology, products and services. Things were relatively cheaper three decades ago. Recently, at least 60% of revenue is spent on maintaining supplies that are important for keeping the business operational. In order to minimize these huge expenses, companies have started introducing best practices for procurement compliance. These best practices help business owners make decisions that help make their businesses successful.

Evaluating any best practice for procurement compliance requires having a strong hold on important aspects of the business. – “Cost Drivers.”

Cost Drivers

These are essential components and elements that identify the actual total cost of processes involved in a business.

Once these components or elements are identified, action can be taken to lower the costs as a form of best practices. Companies can further investigate these elements and components to find alternatives that can help save extra money. Often, company owners fail to understand and identify the cost drivers and this disables them from developing best practices from the beginning.

Once Cost Drivers are identified, implementing best practices associated with managing these drivers and successful relationships with suppliers can be achieved. Previously, interpersonal relationships with suppliers had been non-existent. Buyers and sellers always related with one another in a confrontational manner. Buyers used to choose suppliers based on cost. Once cost was not suitable, buyers would move to another supplier with better options. This made businesses short-sighted and less effective.

An alternative best practice to choosing based on best price offer is to pick those suppliers that offer better quality and costs rather than just focusing on cost. Additionally, selecting many suppliers that offer reasonable prices and quality is a best practice for success in business. Once you find such suppliers, get into a long-term business contract with them.

Another essential best practice is to use technology wisely. Business owners must implement the use of the technology they buy and therefore training the staff is very important. Leaving them uneducated about the use of new machines is not good. This will hinder procurement compliance and it will hinder the success of the business.

Providing strong support for management officials is another important best practice to ensure successful procurement compliance. Managers tend to have a “hands-off approach” to the business, and they do not get involved in the business. The first requirement for ensuring procurement compliance in this scenario is to provide proper funding for the programs needed for the business. Once the funds are available the business will work well. Moreover, there will be the need to establish a team of workers to ensure procurement compliance.

Having a procurement compliance checklist is the best way of making sure the business succeeds.

Further reading: Corporate Governance | Audit | Performance Improvement

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