Procurement strategies: steps to streamlined procurement

By definition, procurement strategies are systematic approaches that organizations use to acquire goods and services from external suppliers. For almost all companies, this includes the purchasing and provisioning of software.

Accounting for 12.5% of total organizational spend within the average company, software applications have become critical to business operations, with departments from HR and finance, to sales and marketing relying on an increasing number of specialized tools.

The problem, however, is that they have also become the biggest bottleneck for many procurement leaders, a result of an often decentralized procurement process. A combination of both greater choice and the relative ease of procuring software has led to department heads – and to some extent, individual employees – adding to their tech stacks without the approval of procurement, IT, or finance teams.

For many, this maverick spending has led to wasted costs, unfavorable contract terms, and even the risk of security and compliance issues.

An effective procurement strategy tackles these problems head on, not only providing teams with total visibility and control of their software, but also streamlining the entire procurement process.

Why you need a solid procurement strategy

With the average company now using 130 different software tools, it is virtually impossible to manage on a manual basis. At least not without facing security and compliance implications, or the risk of hefty financial penalties.

Having total control of your software procurement process is the only way to avoid these challenges. In fact, without the right procurement strategy, your business may fall victim to:

Inefficiencies and wasted time

The administrative burden of manually managing procurement is excessive. In fact, data indicates that those responsible for the buying, managing and renewal of software spend 61% of their time handling the necessary processes.

The right procurement strategy can reduce this burden, while enabling operational efficiency, putting the organization in a better position to scale, innovate, and respond far more efficiently to market changes.

See how one company halved their SaaS procurement time with Vertice.

Maverick spending

One of the biggest issues with having a manual approach to software procurement is that it allows employees to procure their own software, often without the knowledge or approval of stakeholders such as IT, finance and of course, procurement.

Not only does this type of rogue spending lead to applications being used across the business that aren’t necessarily compliant, but it can also:

• Drive up costs – When IT and finance don’t have oversight of every tool within the tech stack, they can’t keep on top of auto-renewals. They also won’t have any visibility of utilization rates, with many tools eventually going unused, but still being subscribed to.
• Lead to duplicate or redundant software purchases – When maverick spending occurs, companies can end up with multiple SaaS apps that fulfil the same purpose, for example communications apps, project collaboration tools, or email marketing software.
• Weaken an organization’s purchasing power – If a platform has been purchased outside of official procurement channels, chances are it won’t have been negotiated. These employees will also lack the purchasing power held by the procurement team, who may have the leverage to secure better prices and terms.

Learn how Vertice can help you automate and streamline your procurement processes, enabling you to reduce maverick purchases by as much as 66%.

Rising SaaS prices

SaaS now accounts for as much as 14.1% of the average organization’s annual spend, making it one of the most significant areas of business expenditure. The challenge for many is that it’s also the most volatile.

‍Annual price hikes – driven largely by inflation – are only part of the problem though, with costs also increasing as a result of increased headcount, changes in usage, the adoption of new features, and even feature bundling, requiring you to pay for functionality you don’t require.

Without the visibility provided by an efficient procurement process, it’s impossible to have any control of this software spend, and without control you are at risk of:

• Overspending by 30% on each tool
• Paying for unwanted auto-renewals
• Subscribing to more licenses and functionality than is required

Unwanted auto-renewals

With 89% of software contracts subject to auto-renewal clauses, companies that fail to invest in procurement strategies are often tied back into contracts for tools they no longer need, or at unfavorable prices.

Keeping on top of your auto-renewal dates – or better yet, requesting the removal of these clauses altogether – is therefore crucial to controlling costs and preventing wasting spend. In fact, Vertice specifically found that companies with between 400 and 749 employees waste $1.3 million on SaaS every year, rising to as much as $4.5 million for enterprises with a headcount exceeding 2,000.

While unwanted auto-renewals aren’t the only cause of this wastage, it certainly plays a part and is just one of the reasons why companies need to be adopting the right procurement strategies.

Examples of effective procurement strategies

Allow ample time for negotiations

Allowing enough time for negotiations is perhaps one of the most effective procurement strategies, for the simple reason that it gives you leverage to secure the best possible price and contract terms.

When vendors know you have an immediate deadline, you lose leverage. By starting negotiations early, however, you give yourself enough time to:

• Obtain quotes from other suppliers, using them to push for a better deal with your vendor of choice.
• Anticipate future needs, taking current usage data and growth plans into account to renegotiate terms. This could be increasing or decreasing your seat count, or requesting price uplift protection to safeguard against unexpected increases.

It’s not just the renewal date itself you need to be aware of, it’s also the amount of notice required to terminate or amend contracts ahead of this date. For some providers, this will be 30 days, for others it could be as much as 90 days.

Learn how Vertice can track and manage your software renewals, allowing you to gain time back in your day.

Establish your BATNA

Occasionally, negotiations with a preferred supplier fail and it is for this reason why you should have a best alternative to a negotiated agreement (BATNA).

Aside from being a backup solution, your BATNA can also provide you with valuable leverage, making it a strategic procurement approach that can impact the outcome of your negotiations. By acting as a reference point, you can ensure you’re not only securing the best possible price, but also the most favorable contract terms, whether that be the removal of an auto-renewal clause or a cap on price increases.

Ensure you have a process for managing renewals

Given that companies are using an average of 130 tools, 89% of which are subject to auto-renewal clauses, renewal management is a critical component of any successful procurement strategy.

Software renewal management specifically comprises the tracking, documenting and actioning of the renewal dates associated with each contract. Without this process, companies will struggle to keep on top of the vast number of tools that are likely to automatically renew at different points of the year.

As previously mentioned though, it’s not just the dates themselves that companies need to be aware of, it’s also the notice periods required for negotiating, amending or even cancelling unwanted contracts.

Utilize data to make informed procurement decisions

While SaaS usage data may not be a procurement strategy in itself, the insight it provides can underpin your negotiations, improve your decision making, and even optimize your software spend.

Before renewing a contract, for example, you should be assessing your usage analytics to determine whether you need to make amendments to the number of licenses or features you require. Similarly, you may be able to identify why tools are going underutilized and pinpoint whether there are other tools being used that serve the same purpose.

Get to know your organization’s SaaS utilization with Vertice.

Achieve a centralized procurement process

By moving away from a decentralized procurement process where individual departments are allowed to independently manage the purchasing and renewals of their own software, to one that is more centralized, you stand to gain greater control and spend visibility, improved negotiating leverage, more effective risk management, and substantial time savings.

Achieving a centralized procurement process does, however, rely on a number of things. These include steps such as:

• Securing executive buy-in – Support from senior leadership is crucial for driving change and overcoming resistance.
• Defining which categories of spend will be centralized – Certain categories of spend, for example subscriptions under a certain value, may remain decentralized. In other words, department leads may be authorized to procure these tools themselves.
• Rationalizing existing software – All apps in use across the organization will need to be evaluated, with the decision made to either retain, retire or consolidate each one. Find out how Vertice can help you identify and analyze your entire tech stack, including shadow IT.
• Establishing roles and responsibilities – All stakeholders responsible for the different areas of approval will need to understand the scope of their authority and where they fit into the overall approvals process.
• Implementing the right platform – With a platform such as Vertice, you can achieve unified SaaS purchasing, while streamlining the approvals process with customized workflows.
• Developing a standardized process – All departments will need to adhere to the same process for procuring new software applications. It’s also worth being prepared to address resistance from employees that are used to making their own purchasing decisions.

See how Vertice can help you centralize your procurement process.

Work with a procurement partner

Another effective procurement strategy is to leverage the expertise of a procurement partner . By acting as an intermediary between yourself and the vendor, procurement partners not only ensure you’re getting the fairest deal, but they can also save you a substantial amount of time.

This is due to the fact they:

• Have existing vendor relationships that can be leveraged.
• Have a more nuanced understanding of the vendor, for example knowing their fiscal periods and when they’re likely to be more flexible during negotiations, as well as other intricacies such as unadvertised pricing models.
• Know which pricing tactics to use and when.
• Can streamline reviews and approvals, simplifying your procurement process.

How Vertice can accelerate your procurement process

With Vertice’s SaaS purchasing platform and Intelligent Workflows tool, you will not only have total stack visibility at all times, enabling you to keep track of every renewal and request, but you’ll also be able to automate and streamline the approvals process through the use of customized workflows.

See for yourself how an IT consulting company halved its SaaS procurement time with Vertice.