Every transaction or acquisition made by a company can change the outcome of its business. Thus, it is crucial to develop a procurement strategy to establish more efficient business and purchasing procedures.
Simply put, procurement is the process of acquiring new products or services by an organization by following a series of regulated steps. It requires the apprehension of business policies, risks, features, benefits, and exact requirements.
The procurement landscape is engulfed in numerous tasks and activities like the purchase order process, purchase requisition management, contract management, and more. Amid this hassle, it is difficult for business owners and procurement leaders to tackle common challenges associated with procurement.
8 Common Challenges in Procurement With Effective Strategies to Overcome
1. Risk Mitigation
Market risks, cost risks, quality risks, and potential frauds – supply risk has always been a significant challenge in the procurement process. These risks can adversely affect a successful business and restrict it from staying over the profit line. Therefore, supply risks are one of the significant challenges procurement leaders need to manage. In addition, compliance risks, including policy adherence, anti-corruption, and policy adherence, also come into play, to make the procurement process further obscuring.
The solution to this problem is to establish a stable administration, leadership, and monitoring across all levels of procurement to ensure the general regulations and guidelines are being followed.
2. Inaccurate Data
When you scale up, your business and project size increases, but so does the risks and challenges associated with it. Another problem in procurement is inaccurate data. Imprecise information can lead to wrong business decisions, which can adversely affect your business performance and profits. Having access to the right data helps you make informed decisions.
The fix to the hurdle of inaccurate data is to switch from manual data management to more advanced, automated, and accurate methods, such as big data. Having a dedicated team of data analysts and scientists would provide you with access to the latest, accurate information and help you overcome data-related challenges in procurement.
3. Long Process Cycle
In most cases, assets are procured at the last minute. This can elongate the actual lead times and procurement cycle more than what was scheduled and expected. Most businesses tend to skip the long route and adopt shortened cycles, which lead to the following challenges in procurement:
- Extending the timeline for bids or proposals
- Not able to state the evaluation process timely
- Incomplete preparation of technical specifications
- Not enough time for contract negotiation
You can overcome this hurdle by quickly spotting and assessing new suppliers, promptly onboard them, and get a comprehensive view of supplier-related information.
4. Supplier Related Issues
Finding the right supplier who delivers the best-quality at scheduled time is another one of the prevalent challenges in procurement. Most supply chain professionals and procurement leaders struggle with supplier-related issues. The solution to these problems is extensive evaluation and monitoring. Procurement teams should closely monitor supplier performance by ensuring the delivery of the right products specified by both the supplier as well as the receiver.
5. Lack of Strategic Procurement
The process of procurement is becoming more data-driven and cooperative, which has raised the need for a well-devised procurement strategy. But, apprehending all the challenges and strategic implications of each step in the procurement process is still a challenge faced by most organizations.
To develop an effective procurement strategy, companies need to adopt sustainable steps and use only essential resources. Also, an organizational strategy is incomplete without talking about finance. The CPOs and CFOs of the company should work together to develop a strong acquisition and procurement strategy. All in all, there needs to be a fruitful collaboration between the procurement and finance departments to ensure a robust plan that overtakes competition and generates greater profits.
6. Uncontrolled Spending
Spending and finance remain to be common challenges in procurement. But, an even bigger hurdle is uncontrolled spending, also known as dark purchasing. It refers to the purchases made outside the defined procurement procedure. These expenses can turn out to be expensive for businesses. Moreover, when purchases are not justified in the records or material inventory, the company ends up in a loss, which is a substantial challenge for companies to tackle.
To avoid uncontrolled spending, organizations need to have strong leadership and monitoring across all procurement stages to ensure the funds are not being misused.
7. Unskilled Teams
Procurement is one of those business tasks that demand skill, expertise, and experience. Companies with under-developed procurement teams can lead to ineffective procurement strategies, which would ultimately result in a plunge in profits.
Organizations should pay attention to developing their procurement teams with the necessary skills and modern-day technologies to keep up with the existing market requirements. If necessary, companies must also consider replacing non-performing teams with skilled, specialist people to continue their procurement process.
8. Errors With Reporting and Analysis
We’ve talked about the need for accurate data before, but data accuracy is not enough until a company has adopted robust reporting and analysis procedures. The process of procurement requires a large amount of data. A company can manage to accumulate large chunks of information, but it has to be manually handled by procurement workers. It leads to the chances of human errors and misunderstandings, which can be a significant hurdle for organizations.
The solution to this problem is to invest in good-quality reporting and analysis tools that excellent data storage, organization, and management capabilities. With automation in procurement still being a distant vision, companies need to make use of powerful tools and techniques to make the best use of their data.
Wrapping It Up
All the challenges in procurement discussed above can potentially affect the business performance and lead to financial losses. The procurement department is responsible for managing the organization’s spending and deploying an effective annual billing plan. Therefore, the process of procurement needs to be strategic, data-driven, and well-organized. Businesses should streamline the procurement process by investing in the best tools and practices to ensure better efficiency and outcomes.