How to Address the Biggest Challenges in Procurement

Most businesses need direct and indirect procurement, but mismanaged procurement strategies can lead to inefficiencies, logistical issues, and sometimes even security risks. What are the biggest challenges in procurement? And what strategies can businesses adopt to address them?

Direct vs. Indirect Procurement

First, it’s important to understand that there are two different types of procurement: direct and indirect procurement. Direct procurement prioritizes purchasing materials to ensure efficiency and profitability. Indirect procurement involves purchasing materials, services, and supplies that are used to keep the business going – but do not necessarily contribute directly to bottom-line profitability.

Both direct and indirect procurement are necessary for most businesses, and each of them come with a different set of challenges. For example, direct procurement is usually highly efficient, but it’s contingent upon the continued profitability of the current business model and a careful balance of supply availability and costs. Indirect procurement is often decentralized, relegated to individual departments, and is therefore much more chaotic and prone to surpluses and redundancies.

Understanding these nuances can help you sculpt your direct and indirect procurement processes individually, rather than treating them as identical.

Contract Management

Prices fluctuate. So does availability. And if you’re not careful, the old contracts you used to rely on could quickly become obsolete, presenting budget or availability issues that cause your profitability to come screeching to a halt.

It’s very important to follow up on contracts even after they’ve been signed, reviewing the details so you can cut relationships with vendors and suppliers whenever they begin underperforming.

Alternatively, you can manage price increases and renegotiate. Either way, it’s important to have proactive contract review and management measures in place.

Digitization and Adoption

Increasingly, businesses are attempting to digitize and streamline every aspect of procurement. However, there are many challenges associated with this. Finding the right products, training internal staff members to use those products, encouraging adoption by external suppliers and vendors, and creating new processes can all cause headaches. Thoughtful pre-planning, gradual rollouts, education and training, and incentive programs can all help you mitigate these issues.

Reskilling and Upskilling

Of course, if you already have a team of procurement specialists, they may face difficulties in acclimating to this new, digital environment. In some cases, you may need to reskill employees, transitioning them to almost entirely new roles. In other cases, you may need to upskill them, helping them learn new technologies so they can complete their work faster and more efficiently. You’ll need concrete internal training processes to accomplish this.

Supplier/Vendor Onboarding

Similarly, you’ll need standardized processes for supplier and vendor onboarding. You need to set expectations for what your working relationship is going to be like and acclimate them to your business environment. Onboarding is important not only for the beginning of your relationship, but also every time you change your relationship, such as introducing new tech products, changing order processing, or making alterations to how you process payments. The more you standardize these processes and the more frequently you check in with your suppliers and vendors, the better.

Ensuring Data Accuracy

Good procurement processes rely heavily on data. Using data can help you make better decisions, keep costs in line, and flag potential mistakes. However, inaccurate data can totally compromise your analytic capabilities. Accordingly, you should automate as much as you can and rely on centralized “single sources of truth” (SSOTs) to keep your team coordinated and keep your data accurate.

External Communication

If you’re not able to communicate effectively, reliably, and consistently with your suppliers and vendors, the partnerships simply aren’t going to work. You can mitigate many problems here by reviewing communication as part of your due diligence and setting proper expectations from the beginning.

Internal Communication

Similarly, procurement processes can suffer from poor internal communication. Whether your procurement team is centralized or distributed across many departments, it’s important to have systems in place to allow these individuals to communicate effectively with each other. Without transparent, clear, and consistent communication, any procurement strategy is going to fail.

Risk Management

Managing and mitigating risk is another major concern for modern procurement teams. Security vulnerabilities associated with your vendors, product shortage risks, and risks associated with inflation and rising prices are just a few of your major considerations. Standardizing your risk assessment processes and utilizing digital tools for risk management and mitigation can help you in this category.

In some ways, procurement has gotten easier and less expensive thanks to the advent of digital technologies and better theories for how to remain efficient in procurement. But in other ways, procurement has become more complicated.

With the help of more streamlined workflows, better communication, better technological tools, and a clear vision for your procurement goals, you’ll be in a much better position to succeed.

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