Top 5 procurement challenges — and how to overcome them
Once viewed as purely an administrative function, procurement is being recognized more and more as an integral component of organizational performance — one that has the potential to significantly impact the bottom line.
But procurement (sourcing the goods and services you need to run your business) can only deliver the expected value when it involves efficient, well-designed processes and everyone in the organization is working toward the same goals.
Needless to say, that doesn’t always happen. Below are five common procurement challenges that can stand in the way of business performance. The more you know about them, the better equipped you’ll be to identify and address problems when they arise.
1. Lack of internal communication
Procurement teams have a unique position in organizations — the function isn’t specifically connected to any one department, nor does it have open access to each department’s data.
In addition, spending data often comes from more than one system and is difficult to aggregate. If the procurement team is making purchases in a silo, without input and key data points from individual teams, it can’t make effective spending decisions that will benefit the organization as a whole.
Procurement teams deliver the most value when they work in tandem with all the relevant stakeholders, and have visibility into spending in all areas. Relationships are critical. Build rapport with internal partners to promote cross-functional collaboration, and work to maintain a good understanding of stakeholders’ needs over time.
Become a procurement expert with our free procurement process guide.
2. Procurement bypass
All companies experience some degree of procurement bypass — when employees purchase an item without going through a standard process. Most commonly, someone orders items online or in a retail store and then submits an expense report.
Organizations that have an ingrained culture of bypassing procurement lose out on bulk order discounts. The practice may also negatively impact supplier relationships and even pose legal challenges (such as signing up for an online service without review and approval).
When bypass does occur, take the opportunity to analyze the reasons why it happened. It could be due to a personnel issue, a lack of knowledge, or inefficient processes, all of which are resolvable situations.
Supply agreements can be complex, with different terms, varying durations, multiple schedules, and amendments.
Many organizations attempt to track contracts manually, which leaves plenty of room for error. Critical information can be hard to find when needed. Scheduled price increases can be overlooked. Compliance issues can be missed.
One way to avoid these issues is to implement a digital contract management system. This kind of system offers a centralized, secure location for contracts, making procurement more efficient and accurate. It also helps maintain consistency across agreements and can even automate parts of the contract workflow — for example, by automatically routing approvals and online signatures and sending notifications for contract renewals and expirations.
4. Poor supplier relationships
Too many organizations overlook the importance of maintaining good supplier relationships. Procurement isn’t just about finding the right suppliers and contracting with them; it’s also about nurturing a long-term partnership that will help your organization grow.
When suppliers consistently don’t get paid on time, perform poorly, or neglect compliance requirements, for example, your overall productivity diminishes and you run the risk of serious business disruptions.
Both partners benefit from nurturing a strong relationship. Suppliers that feel valued take the time to learn about your business and could potentially help you find savings, introduce useful products, and be more responsive in emergencies. In turn, they benefit from having a reliable business partner who is easy to work with.
5. Lack of technology
Organizations often struggle to move past their hesitancy to apply new technology tools to the procurement function. But the traditional methods used to gather data, get insights, and complete essential workflows are inefficient and hamper efforts to scale up. Outdated, manual systems are not likely to produce the kind of results procurement teams need to become a valued strategic partner.
All areas of business are undergoing digital transformation, and procurement should be no different. Modernizing systems and processes can help address pain points, maximize savings, reduce risk, and improve efficiency for both organizations and their suppliers. New technologies like artificial intelligence and machine learning will also allow teams to make better, data-based decisions.
To give your organization the best chance of succeeding with new technology, start with an honest assessment of how your procurement function currently works — and where it needs to improve to better support the business.
Your information has helped me to a greater extent to know principles of procurement .
Very educative. I have learnt a lot
I learn a lot from you Article.
Thank you so much.
The content has been so helpful.
I enjoyed reading your article. It really explains every detail so well. Thank you