Ten Common Procurement Challenges and How to Solve Them

Challenges faced in procurement process
blog dateSep 13, 2022 | 9 min read | views 52

Introduction

In today's business, procurement systems are progressively seeing as vital strategic contributors to their value plan and matching end-user goals. A reliable procurement system is one created to improve accuracy, efficiency, and speed. Because of this view observed by many, the need to standardize business processes within procurement process and ensure best practices becomes very important to the overall business Lan. But despite all the security measures taken in creating a standardized business strategy, sourcing issues still arise. Procurement challenges, ranging from organizational inadequacies to human error, can in turn have an adverse impact on a company's sourcing and purchasing ability. Here are some common challenges in procurement and solutions, courtesy of industry experts.

Top 10 Procurement Challenges and their Solution

Challenges faced in procurement process


The following are the top ten procurement challenges that Businesses face and need to mitigate –

  • Reduction in Quality to Reduce Costs

In today's business world, cost is still a very important factor when it comes to consumer products. This is especially true when it comes to products that are seen as luxury items, like cars and clothing. We see businesses continuing to cut costs even though this has detrimental effects on the quality of their products. In many cases, the quality dimension is altered in order to save money and management has high expectations that the quality risk will not be detected.

Solution: To solve procurement challenges, businesses need to realise their profit margins and create better funnelling of customer and consumer feedbacks in order to create sustainable business practices and exclude cost cutting and quality degradation.

  • Lack of Clarity in Specifications and Requirements 

Providing vague specifications and requirements when procuring doesn't always work and fits the "help me" scenario. If an organization has clear and defined requirements for what it wants from its suppliers, the supplier usually can provide a much better job of fulfilling those requirements.

Solution: A procurement management software can allow businesses to create flexible requirement data sets that can be easily shared with suppliers for better clarity.

  • Lack of Formidable Assessment of the Supplier before the Initiation of Business

Organizations often ignore supplier evaluation and stick to what suppliers promise on paper. Keeping suppliers at arm's length without any form of assessment can leave room for irregularities and untrustworthy experiences. A lack of trust can cause procurement challenges between the parties involved in a deal.

Solution: Before choosing a provider, do careful supplier evaluation criteria and/or assessment. After being chosen, aggressively include key suppliers in problem-solving procedures. Positive results for general growth follow from it. Consider your supplier to be strategic partners in business.

  • Having a lack of considerable knowledge about the Supplier Capabilities 

Lack of knowledge of supplier capabilities will almost certainly result in dissatisfaction when potential procurement challenges occur. When a supplier is expected to finish a procurement process quickly beyond his means, the results are typically devastating. When it comes to suppliers, this procurement issue is one of the most difficult ones that experts in procurement face. In order to get more from your suppliers, the process—from choosing the finest to guaranteeing consistent and high-quality delivery—can be quite important.

Solution: To guarantee that all delivery requirements and standards are followed, procurement specialists must continuously monitor suppliers in addition to the conventional procurement process. With deadlines in place and quality agreed upon, begin with progressive increase. In other words, do routine supply reviews, talk about important performance KPIs, and come to an agreement on improvement and action plans.

  • Lack of Agreement on Significant Key Performance Indices 

Implementing best practise procurement requires the use of crucial KPIs. Supply chain best practises utilise five crucial elements (variation, variety, velocity, visibility, and volume). Many procurement specialists are unaware of the need of asking challenging questions about the contributions a new supplier makes to the equation. Although they can be useful, factors like purchase price fluctuation, percentage cost reduction, timely delivery, etc., are insufficient. Furthermore, these activities frequently clash with important strategic ones that have long-lasting effects.

Solution: KPIs should be the principal topic on the agenda for routine supply reviews after they have been agreed upon. A procurement system that delivers a balance between cost, customer value, quality, and speed should be used by the management system.

  • Lack of Supplier Business Trust

Such businesses typically retain suppliers at arm's length in situations where there is zero trust for a provider. The approach is similarly comparable to having little confidence. Some people may not take well to the display of mistrust toward suppliers, and this might result in a number of challenges in procurement. But even so, put your own security first and exercise caution.

Solution: It is important to identify trustworthy suppliers who can form long term association with the business and can operate as partners rather than procurement channels alone.

  • Lack of Business Supplier Transparency

Organizations' tendency to suppress important information leads to procurement challenges that prevent suppliers from giving customers value-packed products. Critical data, such as market trends, product updates, and sales projections, might lead to unpleasant shocks that could damage your supplier relationships.

Solution: As much as businesses need to be clear about their requirements, suppliers are expected to be clear about their capabilities to reduce and eliminate gaps in promise and delivery. Transparency is the key to achieve that.

  • Lack of Formal Contract in the Business Proceedings

More than 40% of vendors on a company's supplier list do not have a formal contract. Legal documents and  contracts may be difficult and time-consuming to draught and alter. When there are frequent requests (for expressions of interest, proposals, quotes, etc.) and managing them takes time, challenges in procurement may occur. Such processes must be followed in a straightforward, equitable, and comprehensive manner. Avoiding them could lead to greater procurement challenges, even though it calls for good work from the procurement teams.

Solution: Before setting out into any sort of association the establishment of a formally and legally binding partnership of association contract must be mandated within the business to ensure legally binding promise and delivery.

  • Inflexibi lity of Suppliers

A number of procurement choices are made in conjunction with the company risk management plan. Low expenses, for example, better represent the outcome of business activities. However, some suppliers could not offer savings or continue to include certain levies. With your suppliers, you should frequently find opportunity for bargaining as a knowledgeable procurement specialist.

Solution: See what negotiation possibilities, such as discounts, may be advantageous to your company before choosing a supplier. Keep doing business with suppliers that understand and respect your goal of maximising performance to avoid procurement challenges.

  • Lack of the Access to Accurate Data

The possibility for excess inventory, inventory shortages, and various additional procurement challenges with the ability to negatively impact your organization's bottom line might result from creating purchase orders based on inaccurate procurement data.

Solution: Establishing accurate data sets and data driven analysis and business parameters should be the industry standard.

With the right cloud procurement software, you will stay on top of procurement challenges and make better-informed business decisions that empower your organization to lower operating costs while reducing administrative burden related to procurement and management

Conclusion

The above enumeration concludes the top ten procurement challenges and how organisations can navigate them professionally.

TYASuite cloud-based software is been designed With the new technology trends and advancements which can help you come up with the challenges faced and make your business organised.

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TYASuite

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