4 areas of procurement weakness to tackle today
Procurement professionals probably have more on their plates now than at any time in the last few decades. Ever increasing choices from globalisation and a potential worldwide supply chain, digital technology and the transparency of social media, are just a few markers of 21st century progress.
While this means the procurement function has more tools than ever to carry out its research, make decisions and improve its supplier base, there are signs that all this opportunity is pulling out some weaknesses.
From excessive procurement costs to under-reported wins, these are four areas of procurement weakness that every team needs to address to drive up success in years to come:
Being able to realise, track and report on savings is crucial but isn’t necessarily done in every category, particularly in areas seen as day-to-day. Measuring and demonstrating results in all categories, including workplace supplies, gives the procurement team on-going opportunities to shine.
Working with suppliers to demonstrate savings isn’t just about the main saving at the outset of business. Strong, open partnerships with good suppliers, who understand operational needs and are constructively involved in addressing spend issues, will help procurement professionals to achieve ever-more year round and demonstrate their ability without missing any quality or business goals.
Delivery charges, accounting time, legal fees, negotiation and supplier communications all count towards the total cost of acquisition and when a business has multiple suppliers on board, these costs can rise exponentially. It’s critical to weigh up whether these costs justify the number of suppliers and whether the benefits these suppliers bring is worth the amount of category management resource involved.
Run away spend
Spend that runs away is a common challenge, despite best efforts and hard won negotiations. An audit of all requirements at the start of every tender, with the focus on business needs rather than wants, is essential, as is not over-specing. From this the scope can be set, which combined with a written guarantee from suppliers, will make the chances of spend being managed successfully, far greater.
The other key to keeping costs under control comes from having a strong team of professionals that share the same objectives and speak the same language. It’s vital that everyone connected to the project applies their skills, adheres to their part of the process and understands the clear parameters that are set for the life of every contract.
Supply chain risk
Focussing on cost alone can see procurement teams take their eyes off the ball when it comes to supply chain risk. While compliance is key, areas like business continuity, creditworthiness of suppliers, currency risk and commodity volatility could expose the business to even bigger problems.
Investing time and resource in assessing risk, enabling category managers to look ahead, anticipate any issues or understand the implications of doing business in an ever transparent, social media dominated environment is essential.
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