Mohammed Kafil, a procurement consultant with digital company Kissflow, writes that procurement leaders must think beyond cost savings and put their efforts into delivering value to the business.
Procurement teams have to manage a wide range of tasks, from identifying needs to managing vendors and making payments. For this, they have to play multiple roles to ensure the smooth functioning of the procurement processes.
Additionally, procurement leaders are not only responsible for procure-to-pay functions of critical items but also for aligning their processes according to the business goals and strategies.
For example, suppose a business’s goal is to increase customer satisfaction by delivering quality products. In that case, it is the job of the procurement leaders to source quality products while keeping the cost savings of the business in mind.
As a result, a procurement manager’s work is filled with obstacles and hurdles. It also implies that recognizing and addressing procurement challenges requires effective use of time, money and effort because procurement directly influences a company’s bottom line.
The challenges a procurement leader has to face may differ depending on the company size, line of business and other factors. However, common indirect procurement challenges posed by dynamic markets in the form of unforeseen risks and lack of visibility can affect every business.
Here are some top obstacles that procurement leaders should be ready to tackle:
1. Mitigating the risk
With the advent of Covid-19 and the subsequent disruption of supply chain and shortages, procurement leaders are now looking for contingency plans in case the world experiences another global lockdown.
Apart from that, lockdown or no lockdown, supply risk is always a key issue. The most frequent types of risks include market risks, invoice frauds, cost, quality and delivery delays. In addition, compliance issues such as anti-corruption, policy adherence and others keep procurement leaders at their toes.
An organization can use one of many techniques to overcome such risks. Firstly, a business can adopt an avoidance strategy that involves recognizing the danger and then refraining from engaging in the action that induces it. If people can predict that doing something would result in a risk, they can prevent it by deciding not to do it.
For example, procurement leaders can avoid supply risks, including late deliveries and quality concerns, by procuring from vendors with a good reputation in the market. Moreover, having multiple suppliers for critical goods can also ensure that a business does not depend on a single supplier.
2. Delivering value beyond savings
Procurement leaders are expected to bring savings to the company through their procurement strategies. Procurement teams may be evaluated on how much they managed to cut costs during a year.
Savings will always be significant, but as companies struggle to articulate how their operations affect the bottom line, delivering value has become more crucial. The most challenging aspect of this transformation is measuring and determining precisely what customer considers valuable.
Perception of value can be determined by figuring out what customers care about. For example, the focus of operations employees will most likely be on service levels, whereas sales teams discuss the quality of promotional materials.
IT teams may talk about integrating processes with the latest technology to deliver value. Each of these factors should be as important to procurement leaders as saving money.
3. Maintaining the right level of transparency
When it comes to organizing data, spreadsheets were a great place to start, but they begin to break apart when large operations are performed.
The first problem one can run into while having traditional data management processes is data access. Finding information and keeping track of it across several spreadsheets may be difficult.
As the amount of data expands, so does the speed of accessing it. As a result, procurement leaders must also consider security concerns and avoid revealing too much data to too many individuals.
Minor errors and omissions may lead to inaccurate data, leading to losing valuable data regarding transactions, clients and vendor relationships.
4. Incorporating sustainability
Sustainability will be the focus of procurement leaders in the coming year due to the world’s economic problems caused by a global pandemic. The lockdown forced almost all businesses to close down for a time.
With the changing market conditions, procurement leaders have to look for sustainability in their processes and develop solutions that can help them adapt to the changes. That includes thinking about the customers, society at large and company profits.
Adopting sustainable practices such as reducing the carbon footprint and waste can help the environment as well as improve the customer perception about the company, which can lead to more profits.
5. Improving procurement agility
Agile procurement looks for and anticipates unpredictability rather than merely managing the existing situation. This requires continuous monitoring of the critical variables that indicate the health of the supplier management system.
It also entails locating a backup supplier who can be contacted immediately if the primary supplier’s risk profile becomes too high.
Top procurement leaders do not only react faster to market changes, but they also figure out how to manipulate time to their advantage. They identify opportunities and challenges ahead of time and plan their strategies accordingly.
The ability to respond faster than the competition can lead to obtaining cost and market share benefits, becoming a more critical point of differentiation.
Mohammed Kafil is a procurement consultant with Kissflow.