Estimated reading time: 5 minutes
• Procurement was long regarded as an administrative function. But it’s slowly emerging to be a strategic and a critical component of any organization. Today, more than ever, procurement has immense potential to impact different areas of expenditure and affect the bottom line.
• Business leaders and managers must remember that procurement can best deliver the intended value with efficient systems and well-designed processes. Indeed, procurement is successful when everyone works towards the same end outcome.
• Despite the significance of an efficient procurement system, only a few procurement systems can deliver the anticipated value. Let’s take a look at top procurement challenges and how to solve them.
Let’s Take a Look at Top Procurement Challenges and How to Solve Them
1. Balancing Sourcing
Procurement departments and professionals struggle with reconciling sourcing priorities, especially in 2022. Procurement faces the challenge of reconciling competing interests like costs vs. risks. One dilemma with procurement is: is it worth it to source cheaper products overseas and accept the risk of non-delivery due to the distant location? Well, this bottleneck continues to highlight procurement’s greatest challenge: the need to balance sourcing priorities, especially concerning risks.
2. Relying on Small Suppliers
Most enterprises are dependent on local suppliers, mostly small and medium-sized enterprises SMEs. Dependence on small local suppliers is operationally critical, especially in remote areas where there’s limited access to business-critical resources. The covid-19 pandemic has highlighted loopholes in procurement, showing that even the slightest shock can impair the seemingly infallible supply chains.
In 2022, as the world returns to the new norm, SMEs will be in jeopardy. Most SMEs closed shops immediately after the pandemic struck. So, a major challenge for procurement is an overreliance on small suppliers who are already nursing the impacts of the pandemic. The cost of resuming operations will be overwhelming. SMEs must meet operational expenditures: salaries, bills, stock, set-up, and advertising. SMEs must also foot accounting costs like rent, taxes, and write-offs.
3. Lack of Internal Communication
Procurement teams play a crucial role. Procurement teams are responsible for procuring materials and services and ensuring healthy negotiations with suppliers. The procurement function isn’t connected to any department. This function isn’t open to any department’s information or data. In addition, spending data comes from one department and system. So, it becomes hard to aggregate. So, the procurement department won’t make effective budgetary decisions without consulting with other departments and stakeholders.
Procurement teams deliver the best value when they work collaboratively with different departments. And when they have access to spending data from discrete systems. Centralizing communication channels to improve internal communications and bolster collaborations is an underlining procurement challenge. A central procurement system that automates processes and centralized procurement information would solve this challenge.
4. Procurement Bypass
Procurement bypass happens when employees purchase items, materials, or products without following procurement procedures – and later forward these bills to the procurement. There’s no doubt that all organizations experience some form of procurement bypass. Those who bypass procurement procedures pose a costly challenge to the organization. Organizations miss out on bulk purchases and fail to optimize potential offers.
Indeed, organizations that fail to institute efficient procurement procedures miss out on cost-saving opportunities. Bypassing procurement can lead to the loss of cost-saving opportunities. In the long-term, it may prove unhealthy for buyer-vendor relationships. Organizations must investigate the reasons behind procurement bypass. When bypass occurs, identify reasons: inefficient processes, lack of knowledge, resolvable issues, etc.
5. Difficulty Tracking Contracts
The procurement function is highly strategic and procedural. Procurement involves negotiating with vendors, establishing terms, and closing contracts. Procurement contracts can be overwhelming with complex terms, overlapping schedules, and varying durations. Some contracts may need amendment and rectification, leading to costly processing costs and lengthy durations.
Deploying a contract management system will help solve this challenge. A contract management system is a digitized system that classifies, stores, and tracks contracts, allowing procurement teams to remain ahead of contract processes. A contract management system integrates into the procurement system. Organizations that use procurement automation enjoy contract management solutions. A contract management system offers centralized, secure, and automated storage. That, in turn, makes procurement efficient, timely, and streamlined.
6. Managing Inflations
One of procurement’s leading challenges is managing inflations. For instance, the US annual inflation rate was 6.8% in the final quarter of 2021. Predictions show the inflation rate will grow further. The impact of global inflation on the Australian economy is well-documented. The United Kingdom has already hit a 30-year high of a 6% inflation rate.
Purchasing During Inflation Affects How You Buy in the Following Ways
- You spend time negotiating for price reductions instead of negotiating for the ‘best’ prices regardless of inflations.
- You stockpile to sustain supply and protect profits
- You determine discounted cash flow and present values without using current values
- You source substitute products and manage demand better
- You avoid cost increases by bypassing go-to-market processes
- You weigh prices against market risks in remote markets
Organizations must ask themselves whether they can deploy inflationary purchase practices faster and efficiently in 2022.
ProcurePort – Overcoming Procurement Challenges
One way of overcoming procurement challenges is by building healthier supplier relationships. Organizations must realign to new stakeholder needs to identify cost-saving opportunities. Organizations must use agile and proactive procurement strategies. A crucial part of reinforcing procurement in 2022 is using sustainable procurement strategies.
Luckily, with procurement automation solutions like ProcurePort, enterprises can prioritize which supply chains have greater risks and more impact. ProcurePort provides end-to-end visibility into sourcing processes, helping procurement teams to remain ahead of the curve in their routine procurement processes.
You can contact ProcurePort to solve your most pressing procurement challenges.