Many businesses have procurement processes down to a fine art. However, there are procurement challenges that can affect even the most efficient procurement department.
Procurement professionals are nearly always trained and skilled negotiators however, procurement processes differ significantly. We’ve taken a look at the 6 key procurement challenges and how to resolve them.
1. Risk Mitigation
Whether it’s supplier relationships or general supply risk that procurement departments need to contend with, there’s always an issue of how to mitigate this to maintain business functionality. Risks such as fraud, bad product/service quality or delivery issues, to name a few, can be some of the challenges that need to be mitigated by efficient procurement strategies and processes.
2. Dark Purchasing (Also Called Non-PO Spend)
You may not recognise the phrase, but you’ll certainly have seen the consequences. This type of spend can often lead to unintentional challenges causing issues within a procurement function.
Dark Purchasing is purchasing which is usually made outside of a standard procurement function and process. Things such as ad-hoc travel spending, entertainment, small value general office supplies, etc can be classed as “maverick” or non-purchase-order spend. This type of spend can often erode the efforts a procurement team is making to manage overall spend leading to surprises and profit margin erosion.
Uncontrolled spending ideally needs to be managed as soon as the issue arises. having a clear, company-wide plan to limit the budget and have full visibility of all ad-hoc spending should help to resolve these issues.
3. Lack Of Transparency
The benefits of individuals with strong skill sets and extensive experience can sometimes be offset by the issue of having multiple pieces of information stored in different places. Staff members, through no fault of their own, may have different spreadsheets, full of data that isn’t readily available to all team members. This lack of data access, which can become worse as a team grows, can make it difficult to quickly find information. Reduced visibility can lead to over-reliance on individuals and subsequently poor quality negotiation preparation.
Errors due to a lack of transparency and too much data stored in various places can result in costs to business deals, suppliers and clients. This is something which can be mitigated by having a centralised data repository, which all procurement team members should be able to have access to.
4. Inaccurate Data
Inaccurate data often goes hand in hand with a lack of transparency and data governance issues. This inaccurate data can have severe impacts on the function of a procurement department. Inaccurate data causes multiple issues impacting profitability, supplier governance and corporate risk.
5. Failure To Adopt Technology
As many of the manual data entry tasks within a procurement department are completed by employees, this can understandably lead to human error. Failure to implement systems which can assist team members with data entry or tasks which can be automated can have a severely negative impact on a procurement team. The SaaS market is now full of applications targeted at sourcing/procurement/purchasing functions. To navigate this minefield, you may need to engage a specialist consultant.
6. Supplier Relationship Management (SRM)
One of the key roles of a procurement function is supplier relationship and performance management. For an organisation’s top 20 suppliers, there will often be an SRM programme in place. These SRM programmes are complex and require dedicated resources to design and set-up the programmes for success.
How To Overcome These Procurement Challenges
Plan For Uncertainty and Manage Risk
In times of economic uncertainty, procurement needs to have the contractual rights to flex up and down supply/costs rapidly. The risk of supplier failure increases in times of economic uncertainty making it ever more important to be able to assess and manage risk.
Diversify Your Suppliers
The old saying “don’t put your eggs into one basket” is very accurate in this instance. Relying on just one favourable supplier is tempting if there is a great relationship and high quality supply. However, there are many issues which could unexpectedly affect your main supplier, which would leave a business exposed. Having a good relationship with different suppliers who can supply similar products is often a little more work for the team, but is very worthwhile.
Locally Source Products
Supply issues are common with out-of-country product supply. Looking into sourcing these products locally, if possible, is a great way of avoiding the issues that can occur when transporting products across borders involving complex supply chains. This method may also allow a business to have an edge over its competitors if the supply of products is in short supply.
Embrace the many opportunities presented to procurement teams through the adoption of SaaS based technologies. Making use of digitization can help a business utilise their team much more efficiently and take away much of the human error which can sometimes happen.
Recognise that procurement faces a number of challenges in managing complex supply chains (products and services) in times of uncertainty. Seek regular feedback from your procurement team to gain insights into supply challenges and technology opportunities. Invest in areas that enable procurement to more effectively manage risk and improve your business outcomes.
For more support and advice to streamline your procurement process, read our expert blogs.