Every organization makes mistakes, but when mistakes happen in procurement they tend to snowball. Due to the involved nature of the procurement function, any mistake along the timeline can lead to myriad others down the line, negatively impacting company performance.
The good news is, better communication solves issues between staff, management, suppliers, and partner companies. By understanding the most common mistakes procurement professionals make, you can learn to prevent them.
Here are five areas where things can go wrong, along with tips for how to avoid these common challenges.
Accepting prices without negotiation
A common procurement mistake is assuming that the catalogue price is set in stone. Depending on the scale of your organization and your relationship with suppliers, prices, lead times, freight charges and, in some cases, consignment arrangements are often open for negotiation. To help pave the way for such opportunities, keep the lines of communication open with your suppliers and look for solutions that create a win-win for both parties. Early renewals are a great place to start. By sharing your future forecasts with your suppliers, they will feel more secure about the steadiness of your business. It might be enough for them to bend on price or agree to other concessions.
Choosing lower quality for lower costs
One of the biggest challenges in procurement is making sure you choose dependable suppliers who match your standards for quality, ethics, and values. All too often, procurement teams compromise on these principals for a “good deal,” only to receive sub-par products that don’t match the original agreement, arrive late, aren’t produced ethically, or fall short for some other reason. To avoid such lapses, work to improve your supplier selection process. Learn more about your suppliers and their processes. Conduct regular visits and audits to ensure they are capable enough to meet your quality standards and deliver products and services on time. Formulate better-worded questionnaires during the supplier selection process to help ensure a good fit. A rigorous focus on quality will ensure that procurement remains a valued partner to your internal business partners.
Losing spending control and visibility
Organizations go beyond their budgets for a wide variety of reasons, including poor management and unexpected inflation. Once the budget is created, it should be reviewed in as much detail as possible. Track your spending in real time and right the ship quickly in cases where you overspend. This heightened level of transparency will facilitate data-driven discussions with the finance department when creating budgets or requesting additional funds due to unexpected costs.
Making snap decisions
At times, purchasing professionals may procure goods or services without considering the strategic alignment to business requirements. This often means ignoring the normal procurement process, which is a common issue among organizations experiencing rapid growth. Consider deploying purchase order software such as Coupa or Ariba/SAP to keep track of old orders and to formalise procurement steps–such as creating purchase orders, reviewing, and approving (or rejecting) them, releasing funds, making purchases, submitting invoices, verifying invoices, and recording purchases.
Not trusting technology
Organizations can be suspicious of using innovative technology to improve business processes over concerns regarding additional cost or security. They may use an online catalogue to search for needed items and an online shopping cart to create requisitions, but much more can be done by using specialised procurement technology. For example, by using procurement software, teams can reduce their requisition order cycles, requisition-to-order costs, and cut back on maverick spending. If you already have procurement technology deployed, contact your provider, and make sure that you are using the system to its full potential. Also, be open to opportunities to improving your processes by doing things such as switching to a third-party provider for managing your information technology systems.