Top 10 Procurement Challenges and How to Overcome Them

Strategic sourcing of products and services has become a critical function for many businesses. As they seek greater cost reductions and efficiencies in their purchasing processes, these organizations are turning to third-party suppliers who can help them with their needs.

However, outsourcing procurement comes with its own set of challenges. Not paying attention to them can jeopardize the health of your vendor relationships. But there are solutions to such challenges, which are worth considering if you want to maintain strong relationships with your suppliers.

Below, we explore the leading challenges in procurement as well as some worthwhile solutions to consider. Let’s take a closer look.

What Is Procurement BPO?

Procurement business process outsourcing (BPO) is the practice of outsourcing your purchasing functions to a third-party vendor as part of a business strategy to introduce greater cost benefits and improve efficiency.

While some consider procurement as a supplementary business function, because it falls under supply chain management, it should be viewed as a core business activity. It involves third-party vendors engaging in buying the necessary goods and services on your business’ behalf and to your organization’s advantage.

Top 10 Procurement Challenges and Solutions

Outsourcing your organization’s procurement functions comes with its own set of challenges. However, there are solutions that can be implemented to ensure smooth sailing. Let’s explore both of these aspects in more detail below.

Transparency issues

    Challenge: One of the first challenges that arises is transparency issues. On the one hand, you may feel that your vendor does not need access to critical information, limiting their knowledge about your business and processes. On the other hand, a vendor may not be fully transparent with you regarding the way in which they perform this core activity.

    Solution: This challenge can be resolved by ensuring openness in the communication process both on the side of the organization as well as that of the vendor. Providing your vendor with critical and supplementary information and data, such as the purpose of the purchasing activities and what your business aims to achieve is a good starting point. Furthermore, vendors should indicate to you how they make their purchasing decisions and what their strategies/approaches are so that you know that they are involved in ethical procurement that will have positive results for your business.

    Risk management

      Challenge: Risk management in procurement is another key challenge to consider. While some efforts may be made to mitigate against risks, this aspect is often overlooked. Examples of some of the associated challenges may include inaccurate needs analysis, disruptions to your supply chain, non-compliance with contracts, disorganization, fraud, price instability, talent shortages, processes that are error-prone, human error, inaccurate forecasting, overspending, unethical practices, unreliability, and changing environments.

      Solution: It’s essential that all potential risks are first clearly identified. Next, strategies should be put in place to ensure that there is an approach to deal with each identified risk. While it is not always possible to identify all risks that can arise, mitigation strategies through prior preparation are a critical component of ensuring smooth procurement outsourcing.

      Contract management

        Challenge: When it comes to contract management, there are two sides of the coin worth considering. The first contract issue is the contract that is signed between a business and a vendor. The second contract issue includes all the contracts signed by the vendor with other parties on behalf of the business. Naturally, this involves several contracts operating at the same time and this can cause havoc if not managed properly.

        Solution: To ensure sound contract management, make sure that you and your vendor’s legal teams have direct channels of communication with each other.

        Ignoring the costs of time

          Challenge: Working with third-party vendors naturally offers businesses important cost-saving strategies. However, this also comes with long lead times. As such, many businesses face delays in gaining access to their purchases, meaning that the time aspect isn’t factored in. Such delays can affect business and client relationships.

          Solution: Planning ahead is critical in this regard. It’s essential to have transparent and open communication with your supplier to determine what types of lead times they foresee in the procurement process. The risks of these long lead times should be mitigated against by ensuring ordering takes place early and on a continued basis so that as one shipment comes in, the next one is on its way. This can significantly streamline supply chain management.

          Inaccurate data or lack of accurate data

            Challenge: Data is the backbone of all business activities and procurement is no exception. However, when your supplier doesn’t offer you accurate data or sufficient data on which to base your business decisions, you may start feeling as though you’re working in the dark.

            Solution: To solve this challenge, ensure that you operate with a vendor that focuses on data-driven procurement. This means that they use the necessary tools and technologies with the right analytics and reporting functions to ensure you get timely and accurate information. This aspect should be clarified with the vendor prior to entering into a business relationship with them.

            Unclear or missing specifications and requirements

              Challenge: When there are unclear or missing specifications and requirements that are passed on to the supplier, mistakes can and do frequently occur. 

              Solution: Procurement best practices indicate that a business working with a third-party vendor clearly spells out their requirements and needs in writing before the working relationship begins. This way, there is less room for errors to occur, while ensuring that both parties are on the same page.

              Controlling unmanaged expenses

                Challenge: While there will always be some form of uncertainty regarding costs and expenses due to fluctuating market conditions, the challenge lies in aiming to foresee as many of these expenses and attempting to reduce them. Suppliers will always try to get the best price for you. However, hidden costs can creep up.

                Solution: To address this challenge, it’s essential that you speak to your vendor about how they plan on controlling hidden expenses and how they plan on mitigating risks of hidden costs. Having clarity regarding this point at the start of your business relationship will give you greater confidence and more peace of mind.

                No established procurement KPIs

                  Challenge: The absence of clearly-set key performance indicators (KPIs) is another huge hurdle to overcome. When there is no clarity about what one is working towards, the chances are that measuring success and making informed decisions will become a fruitless exercise.

                  Solution: For greater procurement efficiency and improved supplier management, ensure that you set clear and measurable KPIs along with their deliverable requirements and key dates and time frames so that every party is on the same page regarding expectations.

                  Lack of supplier business trust

                    Challenge: A further challenge that compounds the issue in vendor management is a lack of trust between the business and the supplier.

                    Solution: Trust is a critical component of any business relationship and this is why clear channels of communication must be established prior to the start of the business relationship. Whether it’s instant messaging, email, or another type of communication, every party must consistently use a previously agreed-upon channel of communication. In addition, a person should be assigned as a point of contact between the business and the vendor to ensure that any issues that need to be escalated go through the right channels.

                    Decentralized procurement processes

                      Challenge: Decentralized procurement processes mean that there can be duplication of orders as decision-making is scattered and too many stakeholders are involved without clarity about who makes decisions and which decisions are best for the business.

                      Solution: A representative from your business and a representative of your vendor should continuously work together and communicate to ensure that there are no duplications of orders and that similar issues do not occur.

                      Conclusion

                      If you want to ensure strong supply chain resilience, you need to mitigate against the risks involved in procurement BPO. While these challenges may seem insurmountable, there are easy fixes and solutions you can implement to address them. And with the right vendor partner at your side, you really can make the most out of your procurement efforts to benefit your business.
                      StorsenDigital is a trusted and reliable procurement partner with years of experience and which follows industry best practices to ensure you get the most value for money from your procurement efforts at the right time. Get in touch with us today to discuss your needs and we’ll ensure you get a tailor made procurement plan that aligns with your business

                      Published: June 24, 2024

                      Continue reading

                      StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.
                      StorsenDigital is a leading company that specializes in sourcing the best outsourcing talents in Europe. With the rise of remote work and digital transformation, skilled professionals are in high demand, and StorsenDigital is at the forefront of managing the supply and demand of these talents.