How to Overcome Procurement Challenges
By Hugo Britt | January 20, 2022
Now is as good of a time as any to overcome some of the procurement challenges that are hampering your sourcing function. In this article, we explore how to overcome 6 common problem areas that often give procurement professionals a run for their money.
How to overcome procurement challenges
Facing these challenges head-on may seem like an overwhelming task but there is good news: improving any one of these areas has a flow-on effect that will benefit the others.
Spend visibility is a cornerstone challenge in procurement. Fix visibility, and you’ll be well on your way to improving cost savings, maverick spend, supplier risk, and unlocking the transformational power of spend analytics.
Use an eProcurement system to create a single source of truth for company spend data. This means moving spend data out of invisible sources such as emails, spreadsheets, and phone calls, and bringing it together in a central system.
Improving spend visibility gives way to the ability to manage maverick spend. Once you can see where money is being spent across categories, you will be able to identify where your business stakeholders are purchasing out of contract, and maverick hotspots will emerge.
The next step is to understand why maverick spend is happening. Perhaps people are unaware of procurement policies and processes, or find them too difficult to follow. In many cases, mavericks think they are doing the right thing by finding a better price but failing to understand the bigger picture.
According to Basware, 78% of surveyed leaders say the leading cause of maverick spend is that employees believe their purchases are too small to have an impact.
Take steps to address the identified causes of maverick spend. This could involve an education and awareness campaign, training for the eProcurement portal, or holding serial mavericks accountable for their spend.
The emergence of COVID-19 and the ongoing supply chain disruption taught many procurement teams an unforgettable lesson about the importance of resilience: the ability to get back up to speed after a major disruption.
Strategies include planning for uncertainty, supplier diversification, re-shoring (local sourcing), improved supplier relationship management, and increased efficiency through digitization.
Long sourcing times
Purchasing professionals everywhere proved during the COVID-19 crisis that procurement could move fast when necessary. However, this has left stakeholders questioning why business-as-usual involves long sourcing times.
Time-to-value can be improved by:
- Identifying the bottlenecks that are slowing up the process, such as an invoice sitting in someone’s inbox.
- Switching from overseas to local suppliers.
- Digitizing and automating time-consuming manual processes.
- Empowering your team and removing lengthy approval chains.
- Conducting regular end-to-end reviews of the procurement process and removing unnecessary steps.
- Improving supplier engagement to stay informed of potential disruptions.
Looking for an even easier way to speed up sourcing times? Joining a GPO can significantly improve time-to-source by eliminating the time it takes to vet suppliers and negotiate contracts. GPO members benefit from pre-negotiated supplier contracts that are ready to go.
Just like self-driving cars are expected to dramatically reduce road accidents through the elimination of human error, procurement automation reduces the likelihood of spend data-entry errors. Forty-eight per cent of surveyed business leaders identify a “reduction in errors” as a major reason for switching from manual processes to procurement automation.
The reality is that any manual data entry, at any point in the sourcing cycle, amplifies procurement risk. Data inaccuracies lead to wasted time and lower-quality decisions that are based upon that data.
The supply chain is, for many organizations, their biggest source of potential risk. Poor vendor selection or management can lead to quality issues, late or non-delivery, and other contractual non-compliance. Suppliers can also expose your brand to reputational damage if, for example, modern slavery or other ethical breaches are discovered in the supply chain.
Mitigate supplier risk with improved communications and relationship management (with the help of automation), better account and order management processes, supplier performance management, improved spend visibility to understand your exposure, and data management.
Partner with a group purchasing organization like Una to overcome procurement challenges. Get in touch to discover how group purchasing can help reduce many of the risks your procurement function is facing.