7 strategies to reduce procurement cost in B2B purchases

B2B purchases account for the majority of costs in a business. The most prominent companies in the current scenario know that saving on procurement helps not only to ensure an increase in profit margin, but also in competitiveness, as the company can then offer more attractive prices to the market.

However, doing an inquire among suppliers is not enough to reduce procurement costs. To optimize your future purchase processes and decrease these costs in the next transactions, see below the 7 strategies that can make a difference.

1- Strengthen supplier relationship

The closer your relationship with the supplier, the better the payment and service conditions you will be able to negotiate. Although it’s difficult for a company to offer special conditions to a customer who buys only once, it will certainly do so in the case of large, recurring purchases.

Therefore, you should strive to strengthen relationship with your suppliers based on collaboration. In this case, it’s worth creating a portfolio with fixed suppliers, which will generate a recurring revenue for all involved parties.

 

Changing suppliers all the  time prevents the construction of more solid relationships – not to mention that, in this way, your company will never free itself from the condition of new customer and, therefore, it will have less chances of getting discounts or negotiation benefits.

A consistent relationship with suppliers is key to make your arguments stronger and more persuasive when it comes to request better payment terms.

2- Analyze the market situation

Another important aspect to consider is market situation. It’s worth knowing, for instance, how much your competitors are expending with purchases on average. It’s also possible to quote equivalent products, to know if your company is spending too much.

This type of checkup is important for a thorough understanding of the purchase conditions. So it will be easier to understand what you can cut down to reduce costs.

Additionally, checking the current scenario will make you aware of any new trend in raw material or payment model – which can be used in your own logistics

3- Negotiate procurement costs

Negotiating provision prices and conditions is an excellent tactic to reduce costs.

One possibility you have is to quote prices with suppliers of similar quality. When you find more cheap options, you can use these quoted values as a negotiation argument.

If the supplier is willing to keep a contract with your company, it will probably offer lower prices and even match other offers.

It is also possible to ask for a discount in case of large purchases or long-term contracts. Thanks to the large transaction volume, negotiating differentiated conditions is easier.

Let’s suppose that the order average of a given company is 2,000 units of a certain product every month. In just one month, however, such company plans to purchase 4 thousand units of that product. This means that such company alone will account for 2 months of the supplier billing for that item.

So it’s possible to negotiate conditions that will streamline the purchase process and, therefore, lower the costs. Instead of paying the full amount for the 4 thousand units, the company can offer a value corresponding to 3,500 units only, and both your company and the supplier will win in the process.

It’s also important to do such negotiations regularly – not just in the first purchase. As adjustments and potential changes can render contracts less attractive, the renegotiation of conditions prevents the increase of business expenses.

4- Achieve differentiated payment times

Changing payment times is another way to decrease procurement cost in B2B cases. When purchases must be paid within a very tight limit, the company must have more resources. This disrupts financial planning, especially if the company chooses the term sales mode.

The best way to handle this possibility is to guarantee differentiated payment times. If you have more time to pay – especially after invoicing most of your customers – you will lose less opportunities and will decrease financial difficulties.

5- Propose joint actions

Acting together can be beneficial both to the buyer and seller. It’s possible to do joint efforts for results, like increasing sales or attracting prospects. This is the time to clearly show the benefits of this kind of agreement for everyone.

It’s also time to request a discount on procurement. In this sense, the supplier wins because it will sell more, with a larger average ticket. The company acting as buyer wins too, as it can adjust its prices and be more attractive.

As we speak of joining forces, another good possibility is gathering with other companies, to achieve larger procurement volumes together. The higher the order, the greater will be the chances of getting discounts and other special conditions.

6- Avoid urgent purchases

Have you ever had to buy an air ticket at the last minute? If yes, you know how much urgency can cost. The more urgent an order, the greater will be its cost. The unpredictability of a situation will imply higher prices from suppliers, as they will know that the purchase is an urgent need.

Even if the provider wants to keep the price unchanged, the lack of planning will make getting the items and assuring the deadlines harder. So, you should avoid urgent purchases. Try to put your orders as early as possible, so you can achieve differentiated conditions.

Use data from other sectors, such as inventory and sales information, and take advantage of planning the demand. After that, make your orders as early as you can, to ensure optimal business conditions.

This tip is particularly important for those who buy items that show high price fluctuations. With adequate planning, you will be able to dictate the purchase conditions.

7- Rely on technology

For large-sized companies, conducting these processes manually is unfeasible – or counterproductive, to say the least. There are many sectors and purchase orders to manage, and tracking the progress of each one in this way can be a real chore.

Technology can be a great ally to handle this issue. With an automated system, everything will be under control. The processes of registering all suppliers and monitoring operation performance will be then more and more streamlined.

Nowadays, large companies don’t waste time anymore to know if the suppliers are meeting the requirements and if the relationship with them must go on. The use of technology along with artificial intelligence not only makes the process easier, but also provides more reliability to the submitted information and favors the decision-making process.

You have just to follow these strategies to decrease procurement costs in B2B relationships. In other words, to get discounts and better conditions, keep planning and rely on the help of technology. And how your company decreases the procurement cost in B2B purchases?