A Quick Guide to Effective Budgeting in Procurement
Originally published on September 15, 2020
When it comes to budgeting, every procurement department wants to make sure they’re staying well within the budget that’s been set. Whether it’s negotiating with suppliers to try and bring down procurement costs or reducing expenses across the department, there are numerous ways to ensure that the budget isn’t exceeded. However, how do you know the department is operating on effective budgets? This quick guide offers a few simple solutions for consideration to ensure your budget has been created and allocated effectively and efficiently.
What is effective budgeting?
To effectively budget, you need to ensure you understand all fixed and variable costs within your department and the company. The procurement budgeting process falls under the initial procurement planning process. Regardless of the company’s size, developing an effective procurement plan will take some time. You can learn more about the procurement planning process and what needs to be considered within this, over on our complete guide to successful fleet procurement.
Three solutions for effective budgeting in procurement
1. Communication is key
A simple yet often overlooked method to effective budgeting in procurement is to ensure there is clear and transparent communication between the different departments. How are you supposed to create savings if you are unsure of how the fleet managers and other department heads are managing things?
To overcome this challenge, a weekly virtual catch up with heads or managers of departments will ensure you are able to understand how you are all aligning to your companies mission. Virtual communication is readily available and is a great alternative to in-person meetings, making sure all attendees feel comfortable, especially with the current pandemic. Communication software such as Google Hangouts and Microsoft Teams are both easy to navigate, free and offer the option to video chat or instant message.
Whether your goal is to remain competitive or increase profitability, clear communication during the virtual catch up helps to ensure everyone is on the same page. It also provides the opportunity for feedback on variable costs from other departments, so that the procurement department is able to consider how to reduce procurement costs if needed.
Remember, you need to ensure that you have a procurement plan and budgeting process that is thorough and strategic, yet also has the flexibility to adapt to any volatile changes in the market.
2. Invest in new methods of saving
Procurement expenses can quickly mount up. So, it’s always best to put the time into researching new savings methods during the procurement planning process, rather than having to try and find ways to reduce expenses and costs over the year. For example, fuel cards are an effective way to reduce fuel costs with some providers allowing you to set a spending limit. Setting a limit means you won’t be faced with any surprises and can ensure that the budget for fleet fuel stays firmly within budget.
3. Choose software to support business requirements
Within the procurement planning process, timing needs to be considered. Depending on the nature of the company, you may be under a tight timeframe to deliver, and you don’t want your workforce to be hindered by lots of paperwork and form-filling. For an efficient way to budget in procurement, it is wise to invest in high-quality software to make the whole process seamless.
Systems which clearly indicate your budget allocation and can track your budget alongside key performance indicators will be able to support you and make managing your workload easier. Additionally, ensuring your procure-to-pay process is transparent will enable a much more effective budgeting process. For automated procurement budgeting software, there are a variety of great and suitable free options available to try like Prokuria, Open Procurement and Khareed E-Procurement.
When it comes to effective budgeting in procurement, it’s important to invest time in the process. Researching new methods of saving and pieces of software that will make the whole process much easier for years to come is key for efficiency in the future. Besides, investing time in meeting with your colleagues and building your relationship with other department leaders will give you a much better insight into the spending activity of other departments. For more information on some team building activities to help develop company working relations, please check out our blog on the topic.