The top 5 challenges procurement departments face
Unlike Finance, Sales and Facilities Management, the role that procurement plays is different in every company. For some, procurement is the effective purchaser, in others, it’s a trusted strategic adviser or the team that manages risk.
However, there are some common challenges which most CPO’s will face.
Here are the top 5 procurement challenges and expert-driven thoughts on how to address them:
1. Stakeholders don’t see our role in the same way
It’s pretty common for internal stakeholders to have pre-conceptions about what procurement should do. Often this is the cause for frustration when these preconceptions and the CPO view don’t align.
How do you solve this?
Be open about where you are as a function and where you are trying to get to. Ensure stakeholders can visualise the current and future state by painting a verbal picture. For example, “We’re currently operating like traffic wardens”, “But we want to be like ‘flight crew’”.
Stakeholder training can also help. Taking time to train your stakeholder teams, will ensure they understand the role that procurement plays.
2. Everyone is a buyer: “Procurement is just buying stuff. I do that at home!”
Of course, everyone can “buy stuff”, but what many people don’t realise is that Procurement is a specific set of skills and tools that are as unique as Sales, Finance or Executive Leadership.
To overcome the enthusiastic stakeholder, my advice may seem counter-intuitive: Try encouraging their enthusiasm but be clear about the savings targets and the process.
At best, an enthusiastic amateur will become more effective and deliver the savings targets, freeing you to focus on other areas. At worst, they’ll realise what it means to run an effective procurement exercise. If the savings delivery starts to fall behind target, they’ll turn to procurement to take over.
3. You’re only as good as the last disaster
You can be working well as a function, and everything is going fine. Then suddenly, a supplier fails, or a shipment is delayed, or prices skyrocket. Suddenly, the function is in crisis mode and your reputation is in tatters.
Un-expected events that rock the supply base will always happen. You should build plans that mitigate the major risks – at least the ones that you can see… but also, acknowledge that however much your scenario plan and pre-empt disaster, things are never going to go 100% right.
Make sure your key stakeholders understand that you’ve considered all plausible risks. Ask if they can conceptualise any other risks and re-assure them that you have enough resource and agility to respond to any out-of-the-blue occurrences.
It won’t prevent adverse events, but it might establish that you’ve taken all reasonable steps and are prepared.
4. Leakage: The eternal problem of internal users buying from non-preferred suppliers
Guided buying tools, new supplier on-boarding controls, regular tenders can reduce “leakage”, but I’ve yet to see any organisation where maverick spend, or preferred supplier lists are completely under control.
The trick here is to keep your sense of indignation in perspective. Trying to achieve 100% compliance is unlikely to win any friends or generate major savings.
Use your time to address the bigger ticket items. And if you’re really concerned that major savings are being lost, focus on the one or two key non-compliant teams. Any correction in behaviour will be far more effective from the department boss than if it is seen coming from procurement.
A major enemy of procurement is the time it takes to drive an end-to-end RFP. A six-month RFP process is a source of stakeholder concern and can justify bypassing the procurement team entirely.
To resolve this, you need to tackle the problem from two angles
Firstly, understand what the stakeholder is thinking about at least 6 months in advance. This comes down to regular, tactical level discussions with the key stakeholders to tease out and agree a sourcing plan for the year based on their priorities.
Secondly, you need different service levels…. If a 6-month RFP is not possible, you need a 3-month fast version and a 1-month emergency process. If you can template these in a Source-to-Contract tool it becomes much easier manage several procurement events in parallel.
You’ll often hear procurement departments claim that they are hampered by bad data.
- In my experience, there is usually enough data to make good business decision and to identify the main opportunities.
Another challenge is operational & administrative tasks.
- Like gardening or painting, easy repetitive tasks can be comforting. Some people love spending time in data analysis, or PowerPoint slides, or even just networking.
- Robotic Process Automation, sourcing software, data Interfaces are all technological solutions to remove non-value adding activities, but the underlying issue often stems from individual behaviours and culture. Moving the team toward value adding activities, rather than away from non-value-added activities will focus on the results rather than the process.
Where to turn to for inspiration when you face a challenge?
Whatever your challenges are as a procurement team, remember that the procurement community is pretty good for sharing knowledge and joint understanding. Suppliers have usually dealt with hundreds of procurement teams and can often provide solutions.
It’s highly unlikely that your challenges are unique and there are some great trainings, networking forums and knowledge articles that you can turn to.
Don’t suffer in isolation! Procurement teams are experts at looking for solutions in a creative way. By seeking out solutions you can benefit from a vast wealth of expertise that are usually happy to assist.