6 Classic Procurement Failures and How To Overcome Them
By Hugo Britt | July 14, 2020
You only need to glance at the biographies of some of the world’s biggest success stories to realize that the journey to triumph doesn’t end with your first big failure.
Abraham Lincoln lost eight elections, ran two businesses into the ground and suffered a nervous breakdown before he was elected as president in 1860. Long before the movie Snow White premiered in 1938, Walt Disney was fired due to his lack of imagination and good ideas. Likewise, Oprah Winfrey was fired from her first television job because she was “too emotionally invested in her stories.”
And (as hard as it is to believe), Colonel Harland David Sanders was rejected by multiple investors as he traveled the US trying to sell his legendary recipe for Kentucky Fried Chicken.
The number one takeaway from these stories is that it is not our failures that define us. The important thing is how you pick yourself up and address your failures head-on.
Overcoming procurement failures
For procurement professionals, a major failure could cost the business millions of dollars as a result of wasted time and delays, overspending and damage to brand reputation.
Here are six examples of common procurement failures and how to overcome them.
Procurement Failure #1
A major earthquake in India has cut off deliveries from a critical supplier, halting production.
Solution: Better risk mitigation
It’s unrealistic to expect procurement professionals to prepare for every possible natural disaster, global trade crisis or supplier bankruptcy. But many teams today fall short on adopting even the most basic risk mitigation strategies. A recent survey by Ivalua found that 31% of procurement, supply chain and finance professionals handle areas such as risk management the old-fashioned way – with a pen and paper. Today, it would be foolish not to adopt a procurement system that can analyze top supplier risks and their implications in order for teams to develop contingency strategies.
Procurement Failure #2
Out-of-control maverick spend is costing the business.
Solution: Improved communication
There is no quick-win when it comes to addressing maverick spend within your organization. Addressing the problem will take patience and perseverance, but it is doable. Uncontrolled buying can be a disaster for procurement teams, resulting in damaged relationships with suppliers, blown budgets, and a loss of revenue for the business. It’s possible that your e-procurement technology isn’t being properly leveraged or training on how to use the system has been inadequate. First, educate your employees on the importance of a centralized procurement system. Then, make sure it’s accessible and easy to use.
Procurement Failure #3
A lack of accurate data has led to a shortage of a crucial product component.
Solution: Clean up your data
Procurement simply shouldn’t be making major purchasing decisions without reliable data. While many professionals complain that they are drowning in too much data, there’s no point having it if:
- You don’t know what data you have
- It’s not organized in a way that makes it useable
- It’s irrelevant
Good data management can result in more accurate predictions, streamlined (and more sustainable) processes, and cost savings for your business. The alternative is excess inventory or inventory shortages.
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Procurement Failure #4
An important supplier negotiation has turned sour, putting the relationship at stake.
Solution: Prioritize supplier relationships
Many procurement professionals know what it’s like to lose their temper during a supplier negotiation. You’ve been at it for hours, no one is budging on contract terms and the expectations laid out by your supplier are downright unreasonable. There will be instances when you have to cut your losses and walk away from a supplier. But when that isn’t an option, you’ve got to keep your cool during negotiations.
Paying attention to your supplier, getting to know them better and working collaboratively will reduce the chances of negotiation blow-ups because it establishes trust and mutual respect, as well as driving greater innovation for your business.
The prospect of difficult and unreasonable suppliers is yet another reason for forward-planning and the creation of contingency strategies (alternative suppliers).
Procurement Failure #5
An order has been placed for 50,000 units when only 5,000 were needed.
Solution: Act quickly
Everyone makes mistakes, but the very worst thing you can do is attempt to brush it under the carpet in the hope it goes away or try to blame somebody else for your error. The quicker you act the better, which means contacting the vendor to explain the situation. Assuming you have a good relationship with your supplier (see Failure #4) there’s no reason the situation can’t be resolved.
If you’ve noticed that mistakes like this are a regular occurrence, it may be a sign that something’s up with your procurement systems. In this case, you’ll need to implement extra protocols to safeguard the business against human error.
Procurement Failure #6
A verbal agreement with a supplier was made but there is no contract to prove it.
Solution: Always protect your organization with a contract
No matter what anyone tells you, a verbal contract is not a binding contract. Shockingly, several companies have over 40% of suppliers on their database without a formal contract. It takes time to produce contracts, but creating and implementing a system will speed up the process and, most importantly, protect you from any problems that arise along the way. No matter how small the supplier, you always need a contract.
If you’re beating yourself up over a recent procurement mess-up, rest assured that you’re not alone – everyone makes mistakes from time to time. Try to see the bigger picture and look upon failure as a learning opportunity.
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