Procurement leaders juggle various tasks and oversee a range of duties such as identifying needs, managing vendors, and processing payments. A day in the procurement department is always busy. This causes a procurement manager to face numerous obstacles and hardships in their job.
To stay on top of things and be proactive, procurement leaders need to identify and address the challenges head on. Since, it will have impact on achieving your procurement goals, It is worth your time, and effort. Challenges faced by each organization may differ based on factors such as its size, industry, business model, and region, there are six common procurement challenges that affect businesses of every size.
Maverick Spending
Maverick spend or dark purchasing refers to purchases that occur outside of the official procurement process. Businesses may end up paying a high price for such unmanaged spending in the long run. When organizations, regardless of size, face the challenge of justifying purchases without capital or material inventory, the result is a significant loss of both revenue and control.
One quick way to fix this issue is implementing a clear procurement processes and policies. Enforce employees to get approvals for every purchases and stop paying non-PO invoices.
Risk mitigation
The procurement process is always faced with a significant challenge in terms of supply risk. Common types of risks include market risks, potential frauds, costs, quality issues, and delivery risks. Furthermore, procurement leaders lose sleep due to compliance risks such as anti-corruption and policy adherence.
Create a risk framework for each purchasing category and manage a risk portfolio. It will help you to be proactive in identifying potential risks and address it early on.
Lack of transparency
Spreadsheets were an excellent starting point for managing purchasing data, but they become inadequate when you grow and the process get complex. One potential problem you might face is data integrity and accessibility. Finding and keeping track of information across multiple spreadsheets can be challenging. As the volume of transaction increases, the accuracy and rate at which you can retrieve information decreases. One way to bring in transparency is by automating your procurement process as it takes care of record keeping each and every transaction as it happened.
Strategic Supplier Relationship
Building a strong supplier management is one of the most significant challenges for procurement teams. From choosing the correct supplier to monitoring performance and maintaining a steady supply of high-quality products, the entire process is fraught with challenges.
Unclear specifications and requirements are major internal factors that contribute to supplier issues. It will be simpler to oversee high-quality delivery if suppliers express their expectations. Likewise, failing to conduct proper vendor evaluation to understand their capabilities and missing to establish key performance indicators will increase the probability of poor supplier relationships.
Have a pre-defined requirement gathering document, so the specifications are captured clearly. In addition, include KPIs in your supplier contracts and review them periodically.
Lack of Technology Adoption
Handling procurement processes manually may seem smooth initially, but as you grow and the process become more complex, they can hinder your growth. One of the challenges in procurement is viewing technology as a valuable ally that aids in creating value for a company and not as a threat. Understanding how automating procurement can save cost, improve productivity, and drive creativity is crucial for reaching your objectives.
Overcome your challenges with the right tool
With changing geo political and economic conditions, there is a steep rise in new procurement challenges. Comprehending the challenges in your procure-to-pay process, vendor management, and contract management is essential to outperform competitors and achieve your procurement goals.
Struggling with any of these challenges? It might be a good idea to audit your current processes and systems, diagnose the root causes, and fix it.