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Significance of Working Capital Management for MSMEs
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Why SCF is synonymous to easy financing
How SCF is Transforming MSMEs in B2B Industries
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Strategies for Low-Cost Raw Material Procurement Through Digitization

April 3, 2024
min read

Raw material procurement makes up a significant part of manufacturing costs, emphasizing the need for efficient procurement to keep profit margins healthy and stay competitive. Traditional manual and fragmented procurement methods often pose challenges in finding the best prices and executing orders with minimal overheads.

Digital tools and smart technologies have become game-changers, providing organizations with ways to enhance procurement efficiency. Here, we explore three strategies facilitated by digital tools aimed at reducing costs in raw material procurement:

1. Consolidated Raw Material Procurement Platform

Using Consolidated Raw Material Procurement Platforms is a smart strategy to ensure cost-effective sourcing. These platforms bring several benefits for achieving low-cost procurement:

A) Centralized Procurement:

  • Streamlining the procurement process through a centralized approach allows businesses to negotiate more efficiently and make bulk purchases, resulting in substantial cost savings.
  • Centralized procurement minimizes the complexities associated with multiple channels, reducing operational costs and enhancing overall efficiency.

B) Pan-India Presence:

  • The widespread presence of these platforms enables businesses to access the best regional rates, capitalizing on regional price variations and securing materials at the most competitive prices.
  • Cost Optimization: Leveraging a diverse network of suppliers from different regions contributes to a cost-effective procurement strategy.

C) Building a Strong Vendor Ecosystem:

  • Establishing a robust vendor ecosystem through these platforms enhances reliability and flexibility in procurement, contributing to cost-effectiveness by ensuring a stable and diversified supply chain.
  • A strong vendor ecosystem provides businesses with better negotiation power, leading to favourable terms and cost-effective agreements.

In essence, the strategies facilitated by Consolidated Raw Material Procurement Platforms not only save costs directly through streamlined processes and access to regional rates but also indirectly contribute to cost-effectiveness by fostering strong vendor relationships and negotiation advantages. This comprehensive approach promotes a more efficient and economical raw material procurement process.

2. Embedded Financing Options:

A) Enhances working capital flexibility:

  • By integrating digital financing tools, working capital becomes more flexible, allowing suppliers and buyers to optimize the use of their free cash flow. This flexibility contributes to cost savings by ensuring efficient allocation of funds for diverse business requirements.
  • With improved working capital, businesses can procure raw materials at optimal costs, avoiding disruptions due to cash constraints.

B) Encourages favourable supplier terms:

  • Steady access to financing enables the buyer to negotiate for favourable terms with the suppliers, including discounted prices. Such negotiations contribute to cost-effective procurement for buyers.
  • Even smaller buyers, who may traditionally face challenges in negotiation, can leverage such embedded financing features to secure favourable procurement costs and payment timelines. This inclusivity ensures that cost savings are accessible across a diverse range of businesses.

3. Vendor Digitization

A) Process Efficiency:

The digitization of vendor interactions streamlines the procurement process, reducing the need for manual interventions and paperwork. This automation not only saves time but also contributes to operational efficiency, resulting in cost reductions.

Automated workflows for order placements, invoicing, and payments, contribute to time and resource efficiency, which directly impacts the bottom line of the business.

B) Reduced Errors and Discrepancies:

Automated systems significantly reduce the likelihood of errors and discrepancies associated with manual data entry and communication. This reduction in errors translates into cost savings by avoiding the need for rework, dispute resolution, and corrections over time.

C) Streamlined Communication:

Efficient communication between buyers and vendors is crucial for successful procurement. Vendor digitization enables real-time communication, reducing delays and ensuring a more agile supply chain. Timely communication helps prevent disruptions, thereby avoiding the associated costs of delayed procurement.

Adopting vendor digitization not only promotes cost savings directly through process efficiency and error reduction but also contributes to a more streamlined and responsive procurement process.


Design Low-Cost Raw Material Procurement With Bizongo

Because digitization is crucial for efficient raw material procurement, Bizongo serves as a valuable partner in transforming traditional processes.

Bizongo simplifies operations and supports streamlined negotiations and bulk purchases, leading to significant cost savings through its Consolidated Raw Material Procurement Platform. With a pan-India presence, the platform facilitates access to competitive regional rates, optimizing procurement costs for businesses.

Additionally, the platform’s embedded financing options contribute to working capital flexibility, enabling optimal use of free cash flow for both buyers and suppliers.This financial empowerment enables uninterrupted procurement of raw materials at optimal costs, fostering mutually beneficial transactions with suppliers offering favourable terms.

Let’s Understand this with an example:

Imagine a TMT Bar manufacturer based in Vizag. Let's say they want to buy steel billets for their production. Instead of going to different places to buy the steel billets due to daily rate fluctuations, they use a platform called Bizongo that helps them buy all the steel billets they need through the most viable source at any given time.

This platform makes it easier for the company to discover the best prices for steel billets, accounting for regional price variations,  which saves them money.The platform also provides commodity price signals helping the company decide when to buy and when not to buy steel billets.

Using Bizongo’s Embedded Financing feature, the company can buy steel billets without any cash flow constraints. This ensures that the company can buy steel billets at the desired price points without paying upfront cash and save on the opportunity cost.

Bizongo’s Vendor Digitization further streamlines the procurement for Steel Billet by Automating processes, such as order placements, invoicing, and payments. Reduced errors and streamlined communication minimize the likelihood of discrepancies, avoiding rework costs and ensuring a responsive supply chain.

To conclude

Adopting digitization can help achieve cost-effective raw material procurement by collectively contributing to a more efficient and economical procurement process, showcasing practical advantages in a real-world business scenario.

Procure steel billets and aluminium RM at low prices with Bizongo
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