If you ask a procurement professional about their work life— they’ll offer a view into their chaotic world. Procurement managers are always balancing several priorities at once.
On the one hand, they have pressure from various internal stakeholders to procure materials and onboard vendors to ensure timely quality supplies and services.
Then, there is the added pressure of ensuring that all the procurement happens within stringent budgets. The procurement function is also marred with supply chain challenges, including getting reasonable rates, quality supplies, and timely vendor payments.
Why are procurement professionals facing challenges? What are the most common procurement challenges? How will technology help solve procurement challenges?
We examine these areas in detail in this blog post, along with solutions to streamline supply chain management and the procurement process.
Top 8 Procurement Challenges and How To Overcome Them in 2024
Summarize this article for me pleaseUnderstanding Procurement Challenges
Before we get to the key challenges plaguing procurement teams, let’s analyze why the procurement function faces challenges.
The procurement department was seen as an administrative function of business, ensuring the availability of quality materials at the right time. However, since the 2000s, the role of procurement has expanded further, including the strategic concerns of the organization.
Today, procurement professionals are responsible for developing strategies that positively impact the business’s bottom line. They must also optimize their day-to-day operations, such as managing purchase orders and vendors and performing compliance checks.
Supplier and vendor management, supply chain, cost optimization, and risk mitigation are the additional responsibilities of the modern procurement manager.
However, market risks, critical shortages of raw materials, volatile global trade issues, and the complacent approach towards new technologies by business leaders are pushing the procurement department to the brink of breakdown.
Summarize this article for me please8 Common Challenges in Procurement
The expansive nature of the procurement process exposes it to various risks and challenges. The most common procurement challenges are:
Rising inflation
The rising cost of raw materials is giving procurement professionals sleepless nights. Factors like supply chain disruptions, delivery risks, narrow labor markets, and unsupportive economic policies have increased costs.
COVID-19 and the continuing wars are the two major driving factors for the increasing cost of materials. Intermittent lockdowns kept production low, widening the gap between demand and supply, ultimately leading to higher prices.
Russia and Ukraine are key energy exporters, but due to the conflict, production is low, building further pressure on procurement teams to arrange essential resources at a premium. After the invasion, energy prices increased by 20% for five months.
Procurement managers need help maintaining cost-effective procurement strategies due to rapidly rising prices. This makes rising inflation one of the top procurement challenges in 2024 for business leaders to overcome.
Talent shortages
A significant challenge companies face is a need for more skilled professionals in the procurement function and supply chain industry. The Great Resignation, which had primarily impacted the US market, and the following recession-like tailwinds have sent the labor market into a tizzy.
Companies are pushing current employees to do more with less to fill the vacuum. The existing staff is, therefore, overworked and constantly burning out. Productivity is at an all-time low, and labor absenteeism is rising, further complicating procurement strategy.
In 2024, procurement leaders must identify inefficient processes draining the workforce’s time and energy and find ways to automate them.
Contract management
Contract management is the baseline for maintaining supplier relationships. While the contract is a legal document that signifies the beginning of a new relationship with a vendor, its objectives are much broader than that.
The aim is to enable the business to deliver products at a competitive price. The contract ensures stable and quality delivery of materials and the overall cost-effectiveness of the deal.
However, most procurement teams cannot perform to their full potential due to high turnaround time, manual processes, supplier-related issues, lack of communication and coordination, and lost contracts.
This culminates in missed opportunities for cost savings, regulatory non-compliance risks, strenuous supplier relationships, and poor decision-making. Companies need an efficient procurement system to automate and centralize the supply chain management process.
Inaccurate data
In most companies, procurement teams manage data entry manually. They enter data on spreadsheets and legacy systems with limited automation and analytical capabilities. As the data is handled manually, it’s primarily inconsistent and prone to human error.
The consequence of a bad-quality database drips down to poor and slow decision-making. Businesses lose out on crucial opportunities and expose themselves to unwanted risks like ordering excess inventory due to discrepancies in the inventory level data.
On the other hand, accurate and reliable data allows procurement leaders to make sound decisions and get visibility into the procurement processes.
They get real-time insights and accurate data into demand patterns, market risks, delivery demands, and supplier-specific key performance indicators like lead time and ROI.
The procurement department in fast-growing companies should consider using a centralized data solution to automate data collection and analysis to make their job and financial audits easier.
Absence of internal communication
Poor internal communication is one of the most startling challenges in procurement as it openly contradicts the expectations of higher management from the procurement team, who assume the role of strategic leaders.
The procurement team works independently; therefore, they primarily depend on other teams’ resources, such as financial information and cross-functional collaboration.
However, this information can come to them when there is a robust internal communication network.
One of the critical challenges faced by the procurement team is that they work in silos; they are unaware of the organization-wide strategy and have a limited understanding of the future demands.
Lack of technology keeps key processes slow, as data entry is manual and disorganized. This also reduces the ability to solve the present pain points and makes the business more vulnerable to risks. A technical system is necessary for the company to adapt to the shifting business conditions and overcome procurement challenges.
Risk management
Procurement teams deliver the best results when there is a strong foundation for risk management. Procurement is a long process, and several internal and external factors influence it.
These factors also lead to internal risks like employee behavior and external risks, which are more challenging to control, like global events.
But, the following risks are at the top of a procurement manager’s list of managing risks in the supply chain:
Pricing instability
Currently, the supply chain market is volatile. The continuous price changes increase the cost of procurement. As suppliers demand more money, having a flexible budget is essential to avoid inventory shortages.
Supply chain disruption
Supply chains can be disrupted unexpectedly by factors like war, political issues, and natural disasters. The biggest challenge here is sourcing the materials from another supplier at the eleventh hour. The key here is establishing a response system to manage such instances more efficiently while working with a procurement expert.
Fraud
The procurement process is prone to fraud from various sources: employees, vendors, or contractors. Invoice fraud usually happens when suppliers inflate the cost, and the procurement team approves it without verifying. Price fixing is another frequently seen fraud where contractors team up to raise the cost or waive off discounts.
Supplier issues
Maintaining solid and positive supplier relationships forms the bedrock of solving procurement challenges. Many supplier issues are due to internal factors like unclear specifications and requirements. If the suppliers communicate their expectations, it will be easier to manage high-quality delivery.
Similarly, not doing due diligence on vendor assessment to understand their capabilities and not agreeing on KPIs are other factors that increase tensions in supplier relationship management.
Absence of technology
The lack of digitization in procurement processes is an issue for companies with robust plans to scale their procurement operations. Unless new technologies become integral to daily activities, they will never see the full potential of procurement strategy.
Lack of technology keeps key processes slow, as data entry is manual and disorganized. This also reduces the ability to solve the present pain points and makes the business more vulnerable to risks. Businesses need a technical system to adapt to shifting business conditions.
Summarize this article for me pleaseThe Role of Technology in Addressing Procurement Challenges
Technology will play a key role in overcoming top procurement challenges in companies. Here are a few areas that will undergo the maximum transformation due to digitalization:
Automated processes
Technology will bring the most prominent change by automating low-value tasks such as purchase requisitions, purchase orders, and invoice processing. At the same time, with automation, human error decreases.
This will free up procurement managers’ schedules as they focus on critical strategy-level tasks like planning new strategic initiatives, developing vendor negotiation ideas, and addressing supplier management.
Establishing E-procurement system
E-procurement systems are procurement management software that automates the entire procurement process from Request for Quotation (RFQ) to payment. They also play a significant role in enforcing policies and providing more transparency. The software centralizes all internal procurement data and tools, clearly showing where monitoring is required.
Advanced analytics and reporting
Digital transformation will give companies much-needed access to deeper insights into procurement data. With advanced analytical capabilities, the procurement team can analyze big data to identify spending patterns and cost-saving opportunities to assess supplier performance.
Artificial Intelligence (AI) tools will further enhance it by forecasting demand, identifying market trends, and optimizing procurement strategy. These insights will prepare the leadership to be more resilient to supply chain disruptions and adopt their inventory management strategy accordingly.
Improved collaboration
Centralizing the data from different tools brings all the teams together. Real-time collaboration between multiple departments is no longer a distant dream because teams can access all kinds of data with procurement management software.
The software aligns everyone on the progress and gives stakeholders a bird’s eye view of the entire project.
This is an excellent opportunity for the procurement department to maintain transparency with suppliers by centralizing the contract information and assessing risks using vendor management software.
More innovation
Procurement leaders will finally be on the stakeholder table to contribute to the company strategy by working on product innovation ideas.
They can collaborate with the R&D department to brainstorm plans like making the procurement process more sustainable and emphasize working with vendors that provide eco-friendly materials.
Summarize this article for me pleaseGeneral Tips to Overcome Procurement Challenges with ClickUp
Procurement is a long process, and technology is the answer to solving the most pressing challenges. However, companies must carefully select the software to streamline operations.
ClickUp is an advanced procurement software that fills in the gaps by automating the procurement processes. The automation features are perfectly aligned with the requirements of the procurement teams.
There are pre-built process automation workflows that you can pick up and customize according to the requirement. Track procurement requests assigned to your team members and the status updates.
ClickUp integrates with your existing tools like Slack and Google Sheets, giving you the power to collaborate with your team without switching windows and accessing data within team chats. Start discussions with internal stakeholders, get approvals, and share quotes in the relevant channels.
ClickUp’s Procurement Template allows you to streamline your supply chain management process. Easily track, manage, and monitor all activities, such as stakeholder intake requests, accept pricing proposals from vendors and suppliers, and stay on top of contract negotiations and approval workflows.
The no-code database helps you visualize the progress in one place. Optimize communication and collaboration with vendors and team members, ensuring fairness and transparency.
There are two aspects of successful supply chain management: creating a procurement action plan and a strategy for supply chain optimization.
The action plan ensures you have all the supplies and services on time and within budget.
The strategy helps you stay organized, improve communication, and stay ahead of the negotiations.
The Procurement Action Plan Template by ClickUp helps you do just that by:
- Laying out each task, assigning them to the team members, and adding timelines
- Prioritizing goals for efficient execution
- Sharing progress updates with the C-suite quickly and easily
The best part is that ClickUp combines procurement, Docs, Goals, charts, and more, so you don’t waste time shuffling multiple platforms to complete one task.
For example, ClickUp List View is ideal for procurement processes and managing budgets with custom fields, tags, and sorting features. Get a high-level view of your tasks and quickly sort or filter them.
ClickUp AI automatically fills in your procurement management documents and templates to boost your team’s productivity and reduce human errors. Next, convert procurement plans into actionable tasks within seconds.
Lastly, store all your internal and external documentation within ClickUp Workspace and use ClickUp as a single source of truth for all your procurement requirements.
Ready to take up your procurement challenges head-on? Create a free ClickUp account and start streamlining your procurement processes.
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