Tag Archives: Business Process Outsourcing

Introduction

The acquisition of the goods and services required to maintain and expand the organization is the primary function of procurement in every commercial activity. But, procurement can be an expensive, time-consuming, and frequently difficult process to manage well. Businesses may use the technique of procurement cost reduction to save costs while preserving the calibre of the products and services they acquire.

In today’s highly competitive business environment, procurement cost reduction has become a critical factor in achieving profitability and long-term success. The rising cost of raw materials, increasing global competition, and economic uncertainties have made it imperative for businesses to focus on cost-saving measures. As a result, procurement cost reduction has emerged as an essential strategy that can help businesses stay competitive and achieve their financial objectives.

The process of procurement cost reduction entails assessing the procedure, locating inefficiencies, and putting policies in place to expedite, lower expenses, and boost effectiveness. A comprehensive comprehension of the procurement process is necessary, encompassing supplier selection, contract negotiation, purchasing, and payment procedures.

Consolidating suppliers is one of the best strategies to cut procurement costs. Businesses can negotiate lower pricing, expedite the procurement process, and lessen the administrative load of managing several vendors by grouping their suppliers. Procurement cost reduction can also be achieved by optimizing inventory levels. Businesses can minimize expenses associated with handling and storage, prevent stockouts, and save waste by keeping an adequate quantity of inventory.

Utilizing technology can also assist companies in cutting their purchase expenses. Software for procurement automation can increase accuracy, decrease manual error, and streamline the procurement process. Additionally, it can offer real-time analytics and data, which empowers companies to uncover opportunities for additional cost savings and make well-informed decisions.

Procurement Cost Reduction Strategies

Procurement cost reduction strategies are essential for businesses to stay competitive, save expenses, and increase revenues. A few of the intricate steps that comprise the procurement process are choosing suppliers, negotiating contracts, making purchases, and handling payments. Wasteful expenditure can be the outcome of inefficient procurement processes, which can hurt a company’s bottom line. Therefore, businesses must use cost-reduction strategies to improve efficiency, reduce expenses, and streamline their procurement process. In this post, we’ll discuss some of the top strategies for cutting costs associated with procurement.

Procurement Cost Reduction Strategies

Procurement Cost Reduction Strategies

Consolidating Suppliers for Procurement Cost Reduction:

Consolidating suppliers is a popular procurement cost reduction strategy in procurement that involves reducing the number of suppliers a business uses. By consolidating suppliers, businesses can negotiate better prices, reduce administrative burdens, and streamline the procurement process. Consolidating suppliers can also reduce the risk of quality issues and improve supplier relationships.

Implementing a Supplier Management System:

Implementing a supplier management system is an effective procurement cost reduction strategy that enables businesses to manage suppliers effectively. A supplier management system allows businesses to evaluate supplier performance, track delivery times, manage contracts, and identify areas for improvement. By implementing a supplier management system, businesses can reduce the risk of quality issues, optimize supplier relationships, and negotiate better prices.

Optimizing Inventory Levels:

Optimizing inventory levels is another effective cost-reduction strategy in procurement. By maintaining appropriate inventory levels, businesses can avoid stockouts, reduce waste, and minimize storage and handling costs. Businesses can also reduce inventory costs by implementing just-in-time inventory systems, which allow them to order goods only when needed. Optimizing inventory levels can improve cash flow and reduce the cost of carrying inventory.

Leverage Technology:

Leveraging technology is a cost-effective way for businesses to streamline their procurement processes and reduce expenses. Procurement automation software can automate the procurement process, reduce manual errors, and improve accuracy. It can also provide real-time data and analytics, enabling businesses to make informed decisions and identify areas for further cost reduction. E-procurement solutions can also help businesses streamline the procurement process, reduce paperwork, and increase efficiency.

Negotiate Better Terms:

Negotiating better terms with suppliers is an effective cost-reduction strategy in procurement. Businesses can negotiate better prices, payment terms, and delivery times. Negotiating better terms can also improve supplier relationships and increase supplier loyalty.

Implementing Cost-Effective Payment Processing:

Implementing cost-effective payment processing is a critical cost-reduction strategy in procurement. Businesses can reduce payment processing costs by implementing electronic payment systems, which can eliminate manual processing and reduce errors. Electronic payment systems can also streamline the payment process, reduce paperwork, and improve accuracy.

Centralize Procurement:

Centralizing procurement is an effective cost-reduction strategy that involves consolidating procurement activities into a single department or team. Centralizing procurement can reduce administrative burden, improve efficiency, and reduce the cost of procurement. Centralizing procurement can also improve supplier relationships, optimize procurement processes, and increase cost savings.

Conduct Market Research:

Conducting market research is an effective cost-reduction strategy that enables businesses to identify cost-saving opportunities. Businesses can research market trends, identify new suppliers, and evaluate pricing options. Conducting market research can also help businesses negotiate better prices and identify areas for further cost reduction.

Magistral’s Services on Procurement Cost Reduction

For companies, procurement is an essential job and a major source of costs. In order to increase their bottom line, companies must therefore find ways to reduce costs associated with procurement. Procurement service providers assist firms in cutting expenses, streamlining operations, and boosting productivity by providing a range of services. We’ll talk about a few essential services for procurement cost reduction in this post.

Magistral's Services on Procurement Cost Reduction

Magistral’s Services on Procurement Cost Reduction

Strategic Sourcing:

This type of procurement entails looking for supply chain possibilities where costs can be reduced. Providers of strategic sourcing assist companies in streamlining procurement procedures, cutting costs, and enhancing supplier relations. They find the finest suppliers and bargain for better terms, prices, and conditions by using data analytics and market intelligence.

Contract Management:

Another procurement service that helps companies cut costs and streamline their procedures is contract management. Contract management companies support companies in managing supplier agreements, finding cost-saving opportunities, and guaranteeing compliance. Additionally, they offer contract drafting and negotiating services, enabling companies to bargain better terms and conditions with suppliers.

Spend Analysis:

Spend analysis is a procurement service that looks for ways to save costs by examining procurement data. Spend analysis services assist companies in recognizing inefficiencies, comprehending their spending trends, and streamlining their procurement procedures. To find opportunities for cost savings and to offer insights into procurement spend, they employ data analytics technologies.

Supplier Management:

This procurement solution aids companies in efficiently managing their suppliers. Businesses can monitor supplier performance, manage relationships with suppliers, and pinpoint areas for improvement with the assistance of supplier management companies. Additionally, they offer supplier selection services, which help companies find the finest vendors to meet their demands in procurement.

E-Procurement:

This type of procurement service uses digital platforms and tools to expedite the procurement process. Businesses may automate procurement procedures, cut down on paperwork, and work more efficiently with the aid of e-procurement suppliers. Additionally, they offer analytics and reporting solutions, which help companies find areas for additional cost savings and make well-informed decisions.

Outsourcing:

Outsourcing is a procurement service that involves outsourcing procurement processes to a third-party provider. Outsourcing providers help businesses reduce costs, increase efficiency, and optimize procurement processes. They also provide specialized expertise and knowledge, enabling businesses to focus on their core competencies.

Payment Processing:

Payment processing is a procurement service that helps businesses manage their payment processes effectively. Payment processing providers help businesses reduce payment processing costs, increase accuracy, and improve efficiency. They also provide electronic payment options, enabling businesses to eliminate manual processing and reduce errors.

About Magistral Consulting

Magistral Consulting has helped multiple companies to reduce operations costs through its offerings in Procurement and Supply Chain.

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The article is Authored by the Marketing Department of Magistral Consulting. For any business inquiries, you could reach out to  prabhash.choudhary@magistralconsulting.com

 

Introduction

Financial process outsourcing has been on the horizon of businesses for over a decade now. But there are a few trends that are making this process all the more strategic. It is not only about cutting costs, but having the right partner who could improve the processes, change culture, bring in the new talent and technology and make finance more predictive and proactive.

When it comes to Financial Process Outsourcing, the following trends are changing the landscape of the industry

Smaller and niche clients

Bigger players with a headcount of hundreds of thousands started taking advantage of outsourcing around a decade back. They are increasing it in terms of scale and complexity, however, the major volume is now going to come from smaller players as small as 1 or 2 men companies. Niche processes that are difficult to deliver on a turnkey basis also show promise.

Technology

Technology impacts all industries all the time. Financial process outsourcing is no exception. It has now moved from process outsourcing to process reengineering to automate steps and bring down the costs further and improve the operational efficiencies

Outcome-based offerings

Outcome-based offerings are still to take off but are on the horizon. It makes the vendor, your business partner where they are accountable for business results and not only delivering on the processes. Metrics related to a reduction in sales outstanding, operations costs, cycle time reductions, liquidity improvements, forecast accuracy are a few related to advisable business outcomes

Strategic importance

Outsourcing started as a low-cost low-value add jobs outsourcing. It still is to some extent. However meatier and strategic jobs are now being outsourced. Processes like budgeting, fundraising, investor communications, etc. are also being outsourced apart from the run of the mill accounting jobs

Advantages of Financial Process Outsourcing

There are multiple reasons why outsourcing the financial processes is the best way of doing it. The reasons not only involve cost savings but a host of others that raise the operational standards of the client, whatever business they are in.

Magistral's Financial Process Outsourcing Advantages

Financial Process Outsourcing Advantages that Magistral Consulting Offers

These advantages are:

Cost

Of course, cost considerations here are tangible and very obvious. One dollar saved is a dollar earned. That is a saving that starts showing in the P&L as soon as you decide to outsource. Depending on your location and the process that you wish to outsource a savings of 50-80% is very normal and can be expected.

Flexibility

Apart from the absolute cost savings, there is a further scope of savings due to fractional resources. Fractional resources mean that you are not hiring anyone permanently but are tapping into the skill and experience of the resources only as and when required.

CFO outsourcing

CFO outsourcing or substantial outsourcing of strategic tasks is an emerging trend. This is all the more important for start-ups or funds that are small and can’t afford a full-time CFO.

Focus on core tasks

Outsourcing frees up the management and workforce bandwidth to focus on more strategic aspects of business and operations

Technology

As the vendor is experienced and has worked on outsourcing similar processes from other clients as well, it’s in a better position to recommend and implement a technology that might reduce the effort or improve the turnaround time for a process. It is done by automating several tasks of the process using Artificial Intelligence and machine learning algorithms.

Operational efficiency improvements

Outsourcing to an expert improves the operational efficiency of a process by multiple notches. Something like an increase in efficiency due to touchless processing, reductions in operations cost, and reduction in Day Sales Outstanding (DSOs) are very typical operational outcomes of outsourcing

Improved plan compliance and making finance more predictive

With tools like dynamic real-time scenario planning, dashboards, visualization tools, data science and analytics, and on-demand reporting, it’s possible to make the finance function more predictive

Financial Process Outsourcing: What could be outsourced?

Financial processes that are low value add and not strategic could of course be outsourced. Now added onto transactional outsourcing is the strategic outsourcing elements that require specialist interventions. The activities that could be successfully outsourced are:

Bookkeeping and back-office support

The activities that are time tested to produce cost benefits and improve the quality of operations are account reconciliations, deferred revenues, customer billing and payments, expense processing, general ledger, financial and tax reporting, currency consolidation, payroll services, and vendor invoicing.

Controller services

The services like audit reports, auditor facilitation, compliances, MIS, dashboards, etc form the backbone of outsourcing here

Financial Planning and Analysis (FP&A)

This is the bulk of the planning and analysis aspects of the Finance function. This includes acquisition integration support, board reporting, financial data analysis, ratio analysis, comparative analysis with competition, financial research, along with planning, budgeting, and forecasting

Fundraising

This aspect requires a very specialist intervention. Here the offerings include pitch deck content and design support, investor reach-out, modeling and valuation, and investment bank’s selection

Mortgage process outsourcing

This is a specialist process of a lender whose critical elements could be successfully outsourced. These elements are marketing, loan origination data entry and analysis, underwriting documentation, background investigation, property assessment, accounting, financial checking, documentation checking, mortgage underwriting, and every other micro sub-steps required for the evaluation, underwriting, and approval of loans.

Magistral’s tried and tested process for outsourcing

Magistral has helped scores of clients in the financial industry and elsewhere in outsourcing operations. Magistral follows a customized and low-risk process for a smooth transition. The process puts business continuity and risk minimization at the center. Here are the major steps in offshoring that is proprietary and unique to Magistral:

Magistral's Financial Process Outsourcing Steps

The approach followed by Magistral Consulting for outsourcing financial processes

Project Kick-Off

There is a call with all the client stakeholders to understand their challenges and expectations from offshoring a process. Once the business imperative of offshoring is understood, a proposal for services is prepared. The proposal carries in detail the commercials, methodologies, KRAs and KPIs, project plans, and other details required for client management to take a call. Once the proposal is signed off the action begins.

SOP preparation

Before taking any project for delivery Magistral invests a great deal of time and expertise in preparing Standard Operating Procedure documents. For preparing SOP a trained analyst gets in touch with the client SPOC (Single Point of Contact) and by his skills in business analysis brings all the knowledge of people onto a process document. We call this “bringing what is between the ears onto the paper”. Every fine detail is captured. A Magistral SOP document would carry lots of process diagrams, tips for analysts, swim-lanes, along with audio and video recording of meetings and training. The whole of this process is done without any cost to the client. Clients first-hand see the expertise that Magistral brings to the table without any investment on their part. Once the SOP document is ready, the signoff about its accuracy is taken from the relevant personnel in management. Till this point client does not spend even a single penny and we are fine about it.

Business Reengineering

Once the detailed SOP is ready, business reengineering opportunities make themselves evident. There are processes where either cost could be reduced or turnaround time could be improved by Artificial Intelligence, Automation, and Machine Learning. The same is shared and validated with the client.

Pilot Projects

Our proposals are always signed based on the projects or milestones that we deliver. It is never based on the number of people (FTEs) that we employ to deliver services. Normally vendors will charge for FTEs and then they will sit and undergo process training at the client’s expense. With Magistral, you only pay when we deliver the project or processes that meet your quality standards. We start with low volumes. Trainers get trained in the process. Coordination with the client is very close and done almost daily to fill any gaps in delivery and expectations. For bigger projects, an onsite analyst sits with the client for weeks and is responsible for business analysis and knowledge transfer.

SLA finalization

Many times, there are no Service Level Agreements decided for internal teams. We make sure we are accountable for everything we deliver and decide the SLAs of every process. These SLAs can be in terms of improvement in quality, turnaround time, analyst’s availability, prompt acknowledgment of requests, etc. With Magistral, if you have internal SLAs, we promise to beat that further with at least 20% improvements.

Process Stabilization

With SLA compliances meeting standards, we increase the scope and volume of work offshored.

 

The phased approach ensures the client is never too invested to back off. The process is also designed to give enough confidence to the clients to trust the expertise of Magistral.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.