Procurement is increasingly a key function of an organization’s cost-cutting and efficiency-enhancing strategies. Procurement departments responsible for contract management, risk mitigation, and supplier relationship management face the following common challenges every day. These challenges can be met with the right tools and techniques. Automating the procurement process frees professionals from low-value tasks, allowing them to focus on strategic issues. Automation eliminates manual processes, reduces human error, and improves overall purchasing efficiency, thereby ensuring that purchasing departments are creating value and building a strong bottom line.
1. Poor supply chain transparency
Lack of visibility into the supply chain is one of the main procurement challenges. Visibility across the whole chain is an important tool for meeting regulatory requirements and reducing risk. According to the Deloitte Global CPO Survey, 65% of procurement professionals have no visibility outside of their Tier 1 suppliers. Leveraging technology can help these professionals create value and reduce costs while achieving a comprehensive view of the supply chain.
Software such as the SRM tracking solution provides visibility into the entire supply chain. Supply chain management can be easily updated in real time. Workflows automatically add contingencies like urgent reorders and critical shortages. Successful supplier contracts are created by using legally reviewed template clauses, and are easy to review and approve.
2. The need for better risk management
Another major challenge in the procurement process is supply risk. Some of the huge risks in the supply chain include managing exclusive supplier contracts, market risk (product availability, price volatility), potential fraud (theft or invoice fraud), cost, quality, delivery risk, maverick spending and handling compliance risk, such as policy compliance, anti-corruption issues.
Procurement professionals must identify the best suppliers to guarantee consistent and high-quality delivery of goods and services. They must continuously monitor suppliers to ensure that all delivery requirements and standards are met. Risk mitigation is critical and often overlooked in the procurement function, and all of these risks have a significant impact on the bottom line.
These risks are best managed through centralized, efficient and transparent data and supply management. By implementing procure-to-pay software such as cloud-based SRM, procurement departments can reduce risk, shorten processing times and streamline procure-to-pay cycles and can better manage supplier relationships.
3. Control and visibility of spend
Uncontrolled spending is one of the toughest challenges that procurement professionals face. Unexpected orders, rush orders, and purchases (from suppliers selling additional merchandise) outside of the company’s established purchasing procedures are indirect expenses that result in loss of revenue and control. Since these purchased items cannot be easily accounted for in financial and inventory records, it can complicate procurement strategies, departmental budgets, inventory management, and financial auditing.
According to the report, 39% of companies believe it is very important to have more control over indirect spending. The only way to control business spending is through visibility, and data helps enable that visibility. Access to real-time data across the supply chain is very important for organizations.
To make sure that all spend categories are managed as efficiently as possible, the best step purchasing departments can take is to automate spend management. Using SRM can assist procurement professionals in indirect spending control. The system can track complex pricing structures and show exactly where unwanted spending occurs. Because all transactions are conducted in the same system, you can track and ensure transactions comply with your organization’s purchasing policies.
4. Inaccurate data
Inaccurate data is one of the main procurement challenges. The procurement process is gradually becoming automated, and many independent platforms and programs can be used to manage the process. Since these procedures are not interrelated, data entry is mostly done manually, leading to errors. Due to inaccurate and unreliable data, organizations are unable to make correct purchasing decisions or create purchase orders, which results in excess inventory, shortages of inventory, stalled approval workflows, and other challenges that complement the purchasing department. All of these can directly impact the organizations profit.
Having a centralized data solution is helpful to analyze, plan macro decisions, and ensure smooth workflows at all stages of procurement. Organizations can overcome the challenge of data inaccuracy by using SRM reporting. This can improve the accuracy of financial reporting data in a fast, simple and accurate way.
5. Comply with the contract
Another challenge in the procurement process is supplier compliance with contracts. Because the number of suppliers is very large, it is difficult to check whether the suppliers are fulfilling their obligations. According to the report, 29% of businesses say they must improve compliance.
SRM enables users to develop key performance indicators, record supplier performance details, and easily check whether suppliers are meeting expectations and complying with contract terms. Its procurement module clearly displays general information about suppliers, supplier contracts and terms, so it is easy to order from the right supplier and track compliance in the process.