For many, procurement may seem to be a routine activity in a business, however, it could be a strategic activity that can save tons of money for an organisation if done rightly. Procurement involves arranging supplies at the lowest-possible cost. It also involves monitoring the performance of the supplier, negotiation of agreements favourable to the organisation and maintaining a strong network of suppliers.
Requiring a wide range of information, procurement process involves a lot of people and is dependent on continuous and effective communication. A well-informed and a well-coordinated procurement team can help find the right supplier with analyses, data and insights into what a company buys and how it buys.
A sub-optimum procurement process, on the other hand, can be a waste for the organisational resources, impacting profitability in turn. As per industry estimates, purchasing costs form around 30-40 per cent of the total costs incurred by any company and it may go even higher in some cases. That means focusing on this single largest factor itself can result in considerable savings for an organisation.
However, many businesses still see procurement as a non-strategic function. For procurement to earn the respect it deserves, and for the business to have greater savings, a collaborative partnership between core business and procurement functions should be made in order to make both accountable and lead them towards a common goal i.e. greater efficiency. For instance, regular updates from the procurement team to the business heads on the company’s spending will give a heads up to the company and allow it to make proactive and smarter decisions.
Top 5 procurement challenges facing businesses in 2020 and beyond
While procurement function in every organisation has its own unique set of challenges, there are some refrains which are common to most of them. No longer any organisation can ignore these challenges for long, considering the impact of the procurement-related decisions on an organisation’s success. So, here is a list of those top five challenges facing procurement leaders across various sectors.
1. Finding and assessing qualified suppliers and vendors
The increasing levels of digitisation have resulted in an inter-connected world wherein a company can easily find out suppliers and vendors. However, this has resulted in another challenge wherein procurement leaders have too many options available with them and they find it difficult to decide which suppliers or vendors are going to be most suitable vis-à-vis their requirements, processes and culture.
2. Aligning with the corporate strategy
Procurement could be looked upon as a non-strategic support function in many organisations and this is why, the function may operate in isolation from the corporate strategy and other core activities. But this belief needs to change fast and why not, research studies prove that by focusing on their procurement activities, organisations can save anywhere from 5% to 40% of their total costs. This percentage of savings could run into millions of dollars.
3. Ensuring standardised, efficient processes
Working with dozens of suppliers and vendors providing services of varied nature, it becomes mind-boggling for procurement teams to ensure standardised processes for each of them. It becomes an even bigger challenge in businesses where procurement is managed by administration department who have several other responsibilities in addition to procurement. A number of activities, including repairs and maintenance, may become adhoc, time-consuming and costly in absence of standard, efficient processes.
4. Controlling costs, identifying leakages and generating savings
All businesses expect their procurement functions to control costs and identify any leakages that could be prevented in order to tap more savings. It is easier said than done. In absence of integrated systems and processes, procurement may become an activity which couldn’t be monitored well due to the absolute variance and diversified nature of services being procured. Seeking quotes, analysing proposals, conducting due diligence and managing the entire show dealing with dozens of suppliers and vendors becomes a cumbersome activity many times, thus resulting in unwanted and unknown leakages.
5. Communication blocks
Last but not the least, the flow of information and communication, amongst internal teams and external suppliers, through unorganised and informal channels may often result in miscommunication. This could be a major stumbling block, hurting an organisation’s bottom-line to a great extent.
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