Amazon Business is a Business Reporter customer.
As supply shortages caused by the pandemic and the ongoing global disruption begin to ease for European businesses, ensuring cost-effective supply once again becomes a priority for procurement professionals. “The response we are getting from procurement leaders in Europe is that in 2024 they expect suppliers to start reducing their prices,” says Nicolas Olague, corporate private sector leader at Amazon Business. “We don't know yet how quickly it will happen or if it will spread to all categories, but it is expected.”
For those working in procurement, it is a good opportunity to get back to the basics of the job, ensuring that any reduction in supply costs translates into lower prices for companies. But while the expectation for many organizations is to have conversations with major suppliers who provide them with vital components and high-value items, procurement teams often have little information about lower-value items.
However, these categories of uncontrolled expenses can add up to significant sums, says Olague, and usually represent 20% of a company's total spending and around 80% of its supplier base. “If you don't have control over price and a strategy around approval, you can't control overall costs,” he says. “The recommendation is to reduce the number of suppliers and concentrate purchases on fewer suppliers. This will allow you to have more control, more visibility and obtain better prices.” Combining spending volumes in multiple countries can help negotiate better prices, she adds, as a result of economies of scale.
A second tip is to anticipate purchases before they are really necessary and, if possible, buy in bulk. “For example, think about how many laptops you'll need next year, based on your purchasing activity over the past five years,” Olague says. “This means you can save not only on the price of laptops but also on hidden costs, such as processing multiple invoices.” Setting rules around spending, such as requiring an increasing percentage of items from sustainable sources each year, can also help achieve broader goals, he adds.
The effective use of data, and in particular the use of artificial intelligence (AI), is essential to better control said spending. “This will be key to managing cost challenges and also meeting environmental, social and governance objectives that are a key focus for businesses,” adds Olague. Many organizations currently don't have access to spending data, she adds, especially if they are used to purchasing items locally when they need them. If they have the data on hand, traditional data management processes are often time-consuming and error-prone, presenting significant challenges for procurement teams. However, AI-powered spend analytics solutions such as Amazon Business Analysiscan automatically analyze data and unlock timely analytics and data-driven insights for better decision making.
Many organizations are now open to the idea of using AI to assist with their purchasing activities. According to Amazon 2024 Procurement Status Report, which surveyed respondents across nine industries and several countries, including France, Germany, Italy and Spain, just under half (45%) would be willing to incorporate AI into their procurement efforts immediately or within a year, and 80% would be willing to do so within two years. Additionally, nearly all respondents (98%) believe their organization will invest in analytics and insights, automation, and artificial intelligence tools for their procurement operations in the coming years.
In addition to benefiting from the additional knowledge that AI can generate, procurement can also benefit from having more time to engage in activities that can add more value to the business as a whole. “Developing procurement capability, agility and innovation are top priorities,” says Aster Angagaw, vice president and head of commercial, public and strategic sector at Amazon Business. “To achieve these goals, procurement leaders must optimize time spent on low-value activities, such as gathering information for reports, manually entering data into disparate systems, and attempting to contact suppliers for delivery updates.”
However, one challenge is identifying the best way to use such technology. A head of procurement at a multinational telecommunications company in the UK says that knowing which digital tools to implement and how to do them is a major challenge: “They are coming very quickly – everyone is using automation, machine learning and artificial intelligence. Should I buy a tool now? Wait? Do I subcontract those services? “These are all questions that come to us.”
An easy place to start is by using solutions like amazon business, which has extended Amazon's AI and machine learning capabilities (in development for more than 20 years) to procurement. Like Amazon, Amazon Business uses AI to improve the search experience and ability to discover products, Olague says, allowing shoppers to see different options in one place. Additionally, Amazon Business' AI-powered product recommendations can help organizations find the same or comparable items at lower prices or with discounted availability, either through the convenience of “Subscribe and Save” or discounts by quantity for bulk orders.
This can also be combined with other data on sustainability criteria or particular types of businesses, such as those owned by women or small businesses. This can help procurement departments direct internal buyers toward particular products or companies, helping to meet broader ESG objectives.
Over time, based on transaction information, it is possible to get a clearer idea of where the organization spends money and begin to develop strategies to reduce it while improving the company's broader objectives. This could be achieved by eliminating unnecessary purchases, negotiating with individual suppliers to offer a lower price in exchange for firm spending commitments, or looking for lower-cost or more sustainable alternatives.
However, the starting point is to ensure that purchases are made through authorized channels and not as individual transactions or through personal accounts. “It's important to take a step back and understand where you are now,” Olague concludes. “How are they buying my company and how can I help focus them? “Some small adjustments can have a big impact.”
To learn more about how Amazon Business can help you master smart business purchasing in 2024, click here.
