At the onset, procurement looks like a pretty straightforward job, i.e., source the required items and ingredients from a vendor. However, that’s not the case at all. Even if you run a small to medium-sized enterprise, you need to handle various procurement challenges every day. Having procurement challenges is not a bad thing. It shows that your business is thriving with activity and production. However, not being able to resolve those challenges is a worrying sign.
A business that continues to struggle with its procurement activity can’t reach its full growth potential. Procurement issues can set off a cascade that also hit and affect other business divisions as well. From losing clients to strained relationships with suppliers, procurement challenges can distill into various unwanted outcomes for an organization.
If you notice that your procurement department is not registering the performance it should, you have to look into five areas that we will shed light on in the below discussion.
Five Procurement Challenges and their Solutions
Let’s skim through five of the most common procurement challenges. We will also discuss how an enterprise can overcome and deal with those procurement problems.
1. Unclear or Missing Specifications and Requirements
Do you know many times a procurement is delayed because of a returned PO due to unclear specifications and requirements? An organization has to under more hassle in many cases because the supplier dispatches the wrong item due to unclear details. Therefore, it is a must for procurement teams to get every product detail right, from dimensions to types/sub-types and color. There are dozens and hundreds of variants of every single item, and even missing one piece of detail can lead to the situation mentioned above.
This avoidable procurement mistake doesn’t just cause production downtime. It can also cause friction among the internal procurement team. The relationship between the enterprise and suppliers can also get sour when POs continue to have unclear and missing details.
Every organization with buzzing procurement activity must devise a well-thought-out category management regimen. They should assign a unique internal code to each procurement item, even if it belongs to the same category. Moreover, the organization should set a PO drafting SOP so that every procurement query is dispatched without unclear/missing details.
2. Struggling to Strike a Balance between Quality and Cost
The quality of your procured items will determine the product of your quality. However, many enterprises seem to miss that important point. They compromise on the procurement quality because they get it at a good (read: cheap) cost. On the other hand, some enterprises procure the best stuff but can’t improve their plummeting margins.
To sum it up, the majority of SMEs struggle to maintain a balance between quality and price.
One way to strike a balance between good quality and competitive cost is to develop a bird’s eye view of your procurement activity. This holistic look at your procurement transactions helps you identify the spend leakage. Similarly, you can identify which suppliers offer similar products at relatively higher price points. Taking care of these extra and avoidable outlays can create room for procuring good quality without increasing your costs and dropping your margins below the acceptable range.
3. Lack of Transparency
Lack of transparency in the overall procurement ecosphere is another reason why many procurement decisions go wrong. Withholding crucial information accidentally or intentionally by one procurement team can impact the decision-making by the other team. Similarly, the entire procurement activity without having any external organizational supervision also develops problems in the long run.
Lack of procurement transparency is a very harmful prospect for any organization for various reasons. For starters, it can create the perception among the procurement staff that they are not accountable for what they do. This perception can lead to the corruption that will keep on silently hurting the organization’s bottom line.
Moreover, you can’t identify various organizational issues without having a thorough assessment of the procurement activity first. Also, seasoned suppliers can easily identify which of their partners have their procurement departments without any transparency measures. Developing a reputation of non-transparent organization among suppliers can also hurt your business in both tangible and intangible ways.
The centralization of the procurement process is the first step toward creating transparency. When every activity is being performed through the same channel, it will be easier to track and monitor it. Similarly, increasing the visibility and accessibility of the procurement process will also intrinsically improve the department’s transparency.
4. Choosing Suppliers for a Long-Term Partnership
It has always been one of the biggest procurement challenges for small and medium-scale businesses. They can select their vendors for traditional procurement activities. However, they can’t succeed in turning those provisional contracts into long-term strategic partnerships. The biggest reason why they can’t choose suppliers for long-term partnership is they can’t identify which vendor can prove to be their strategic associate.
Having a long-term supplier partnership has various benefits. It can help organizations to procure the best quality at a reasonable price and with a quick turnaround. Moreover, working with a supplier for a long time also improves the goodwill of both parties in the market.
Having a good vendor management protocol in place is quite important to reduce supplier turnover. When you have the log of all your procurement activity with every supplier, you can identify the patterns pointing towards the potential of a strategic partnership with some of the candidates from the vendor pool.
5. Establishing Procurement KPIs
Struggling to establish procurement KPIs is also one of the recurring procurement challenges among SMEs. Many small businesses want to establish a well-defined procurement KPI plan. However, they can’t do that because of the lack of procurement data.
A central platform to conduct all the procurement activity is important to get all the data you need to establish and track KPIs. For instance, procurement management software like SimplyPurchasing can help you to fix and monitor various KPIs.
From compliance rate to PO accuracy and vendor availability to lead time, you can find many KPI values from the function of SimplyPurchasing alone. With its impressive all-in-one vendor, PO, and category management, the software can also help you resolve many of the procurement challenges discussed above.