Originally Published on: SpendEdge |Innovative Procurement Process for Banking Cost-Saving
The banking sector is still grappling with the aftermath of the great depression witnessed a decade ago. Various procurement costs, including real estate, ATM maintenance, transaction and card processing services, collections, risk management, security services, and in-branch marketing, are impacting the profitability of banks. To stay competitive and sustain in the market, banks and financial institutions are exploring diverse cost containment strategies. The banking sector actively seeks innovative approaches in its procurement process to control costs.
Supplier Cost Breakup Source: SpendEdge Procurement Research Report – Global Banking Services Category
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Pooling Resources for Cost Containment Banks and financial service providers have introduced innovative solutions for pooling resources for a specific line of business, allocating a dedicated entity to manage the processing. Pooling resources to share infrastructure and operational costs across organizations can lead to massive savings while increasing investment efficiency, making capital-intensive projects more viable.
Vendor Consolidation or Supplier Rationalization Vendor consolidation is a procurement strategy used by the banking and financial services industry to achieve cost savings. Banks aim to reduce the number of vendors across geographies and business units, focusing on selecting a preferred vendor per spend category. Implementing such vendor partnerships allows banks to increase operational efficiency and productivity, saving valuable time and money. Additionally, these procurement cost reduction strategies eliminate the need for lengthy training procedures for staff and ensure compliance with the procurement process.
Investment in Technology The financial industry has historically been resource-intensive and over-reliant on human expertise. While most banks heavily invest in ERP systems, the use of technology is still limited, primarily due to a lack of people who understand such technology. Blockchain technology is emerging as a game-changer in the financial services industry, capable of eliminating lengthy transaction processes along with costly third-party verification. Such technologies can rapidly increase the efficiency of the procurement process within the financial industry.
Adoption Of Public Cloud Services for Digital Banking Banking service providers are turning towards applications and storage space available in the public cloud, eliminating the need to invest in dedicated hardware and software resources. Opting for various engagement models such as SaaS, PaaS, and IaaS, banks can digitize their services without having to maintain data centers.
Innovative Procurement Strategies Cost-saving strategies in procurement in banking
Supplier Negotiations and Consolidation: Banking institutions can achieve significant cost savings by negotiating better terms and conditions with their suppliers. By leveraging their purchasing volume and consolidating procurement efforts, banks can negotiate lower prices, improved payment terms, and reduced service fees. This approach can be particularly effective for commonly purchased goods and services, such as office supplies, IT equipment, or facility maintenance services. Strategic supplier management and partnerships can lead to long-term cost reductions.
Technology and Automation: Implementing technology and automation solutions in the procurement process can streamline operations and reduce costs. Procurement automation tools, such as e-procurement systems and e-sourcing platforms, can help banks optimize supplier selection, purchase order processing, and invoice management. By automating routine tasks and reducing manual intervention, banking institutions can not only save time but also minimize errors and improve compliance with procurement policies, ultimately leading to cost savings.
Supplier Performance Evaluation: Regularly evaluating supplier performance is essential to identify underperforming vendors and assess the quality of goods and services provided. Banking institutions can use key performance indicators (KPIs) to measure supplier performance in terms of cost-effectiveness, quality, and delivery timeliness. By holding suppliers accountable and maintaining transparency in the procurement process, banks can drive suppliers to continuously improve their services and, if necessary, replace underperforming vendors with more cost-effective alternatives.
Read more about the procurement process in the banking services market along with pricing strategies, supply market landscape, pricing trends, negotiation strategies, procurement cost reduction strategies, and procurement insights in SpendEdge’s upcoming report on the global banking services market.
