Top Six Challenges to Successful Procurement
The evolution of procurement means that the function’s success is no longer just about sourcing services and reducing cost. Nowadays, procurement teams face an increasing number of complex challenges. The top six issues, reported by CASME members at RoundTables around the world, are listed here:
1. Risk management
Risk is always a key concern for procurement, with the primary focus on suppliers’ financial status, followed by health and safety and industry practices. It’s no longer good enough to simply engage with your tier-one suppliers. Emphasis needs to be paid to controlling the approach taken with tier-two suppliers, ensuring that the necessary obligations are passed down to subcontractors.
2. Reputation and brand image
It’s not difficult to recall allegations of child labour in the overseas supply chain of certain retail brands, or issues around modern slavery both at home and abroad. The knock-on effect can be disruption to brand and public image and ultimately an impact on profitability. The Modern Slavery Act goes some way towards addressing this, but issues remain around compliance.
Can procurement ever be sustainable? Organisations are making tremendous progress in the approach to direct materials, but indirect procurement is more complex. The level of auditing required to ensure that practice are sustainable, including those of first and second tier suppliers, is labour-intensive and time-consuming. Consider asking suppliers to complete detailed questionnaires and take positive action with the results. Many organisations now issue written codes of conduct, but the key challenge is acceptance and practical application in the supply chain.
4. Be a customer of choice
Innovation is often included in an RFP, but does not necessarily specify what is really needed. Supplier innovation is more likely if you become a customer of choice. A recent CASME survey highlighted that a simple constraint to achieving this is late payment of invoices. Innovation is a two-way process; don’t just write it in a contract and expect the best ideas from suppliers. The most successful approach is to abide by agreed payment terms, and demonstrate a partnership approach by listening and responding to suppliers’ ideas.
5. Centres of Excellence (CoEs)
The trend towards a centralised organisation to support the procurement function is on the rise, with an emphasis on provision of spend data and analysis, plus RFx e-Sourcing support. What is the best approach to organising the CoE’s structure, work responsibilities and operation to ensure the business is supported? A virtual CoE may be an appropriate solution; however, a complete software package, beyond the capabilities of Microsoft Excel, is needed for centralising and recording the CoE’s activities.
6. Stakeholder engagement
At almost every one of CASME’s 180 face-to-face meetings held each year, the discussion invariably includes Procurement’s need for achieving greater connections with stakeholders.
Recent benchmarking studies show that more CASME members are now profiling and prioritising stakeholders and their requirements, in order to plan the right type of communication. For example, whether a particular stakeholder needs an occasional meeting over coffee, or a formal monthly one. CRM tools can be used to track the relationship building activities and supplier onboarding. Credibility can be gained by using the right terminology, and by demonstrating knowledge of the category, suppliers and market trends. By aligning procurement activity to the stakeholder’s business objectives and selling the benefits of collaboration, the overall result can be more valuable than cost savings alone.