Procurement has the power to impact business performance. Yet success is influenced by variables such as people, processes and technology. Here are the 7 biggest challenges faced by modern procurement teams:
1. LITTLE CONTROL OVER SPEND
39% of UK businesses need to improve their budgeting controls.
Procurement’s primary mandate is to achieve savings whilst upholding business objectives. Buying right can cut costs, but savings will only impact P&L if spend and usage are kept under control too. If not, companies can experience an ‘overspend lag,’ whereby over-budget spend is only noticed once it is too late. So, robust budget controls are essential for effective performance planning.
2. INEFFECTIVE SUPPLIER MANAGEMENT
44% of businesses want to manage suppliers more effectively.
A supplier may represent best value during sourcing. However, effective supplier management is essential for this value to become a business reality. Procurement must monitor the supplier’s ongoing compliance with the contract in terms of quality and cost, whilst also encouraging user adherence.
3. OUTGROWING SUPPLIERS
79% of businesses struggle to drive innovation within their current supplier relationships.
As business requirements evolve, existing solutions may cease to be effective. So, procurement needs to remain open-minded to new solutions and market innovations. Similarly, as a company’s procurement strategy evolves, recruitment and development may be required to ensure the procurement team’s skills align with business objectives.
4. MANAGING RISING COSTS
83% of businesses don’t challenge suppliers on cost or performance.
Although a supplier may represent best value during selection, once appointed spend creep can occur. For instance, a supplier may introduce pricier products or offer enhanced service levels for a fee (e.g. faster delivery). Procurement’s role is twofold: to monitor supplier adherence to the contract, whilst steering end users towards the contracted products and services.
5. LACK OF TECHNOLOGY
75% of businesses lack the right technology.
Procurement technology has developed rapidly. Today’s procurement systems, analytics suites and budget management tools have enhanced procurement efficiency, allowing teams to better monitor savings. However, procurement teams often struggle to raise the up-front capital to implement these tools as investing funds in cost reduction initiatives can seem counterintuitive.
6. POOR VISIBILITY OF EXPENDITURE
74% of businesses would struggle to provide due diligence on spend reporting.
In order to maintain visibility of spend and savings, procurement teams need access to spend data from various departments of the business, which then needs to be interpreted. This requires diplomacy, strong interdepartmental communication, and the ability to interrogate the data received.
7. LACK OF FORMAL PROCESSES
87% of businesses have overly complex and resource-heavy procurement processes.
Cumbersome processes or administrative bottlenecks can thwart or postpone results. Any setback to a procurement project, or sourcing event, can delay value being realised. Meanwhile, effective and smooth-running processes, technology and governance allow the timely achievement of outcomes.
These procurement challenges can create unnecessary costs in themselves; whether they’re soft costs associated with wasted time and duplicated delivery charges, or poor visibility and control of overall spend – impeding business performance.