Procurement systems are increasingly seen by organizations as essential strategic contributors to their value proposition. Because of this, the need to standardize business processes within procurement and pursue best practice methods becomes more critical to the overall business strategy. At BEM, we work in procurement systems in every type and size of organization and we have found them to be very similar. Below is a list of the most common procurement problems we see across many different organizations.
Common Procurement Problems
1. Undefined Business Processes
While standard purchasing processes are generally pretty well defined, many equally important procurement system business processes are not. These include processes such as sourcing, supplier management, and supplier development. Missing these processes leads to reactive procurement systems constantly fighting fires.
2. Not Trusting Suppliers
Organizations often keep suppliers at arms length and treat them as untrustworthy outsiders instead of strategic business partners. This lack of trust drives many of the procurement problems in this list. Actively including key suppliers in problem-solving can yield substantial results for overall improvement.
3. Keeping Suppliers in the Dark
Organizations that play “close-to-the-vest” with important information prevent suppliers from serving the organization with their fullest value. Information such as sales forecasts, market trends and product changes create unwelcome surprises that harm relationships.
4. Accepting Poor Quality for Lower Costs
We still see organizations chasing cost reductions to the detriment of product quality. In many cases, the quality dimension gets swept under the rug for the sake of cost savings, where management hopes the quality risk doesn’t become realized.
5. Providing Unclear Requirements
This falls under the headline “help me help you”. Many times suppliers could do a much better job providing what their customer wants if the organization supplied clear and defined requirements.
6. Not Understanding Supplier Capabilities
Not having a clear understanding of supplier capabilities is a sure way to get disappointed by outcomes. Expecting a supplier to quickly do that which is beyond his capability is one definition of insanity.
7. Misidentifying the Customer
Many managers don’t understand that the customer of the procurement system is the supplier. Why is this? Because the purpose of a procurement system is to develop high performing suppliers that deliver to operations requirements. This is very counterintuitive and a difficult concept to grasp that gets in the way of business partnerships.
8. Measuring the Wrong Things
Purchase price variance, percent cost reduction, and on-time delivery to purchase order dates can be useful, but are not sufficient to execute best practice procurement. In addition, these few measures often end up in conflict with more strategic measures that drive real and sustainable procurement system value. All management system measurements, including the procurement system, should include a balance between quality, speed, cost and customer value.
9. Lacking Synchronization
Best practice supply chains operate in balance on 5 key synchronization dimensions; volume, variety, variation, visibility, and velocity. Many procurement professionals do not understand the critical questions that need to be addressed to bring suppliers into balance with supply chain needs.
10. Ignoring the Costs of Time
Cheaper price usually comes with extended lead times. We rarely see organizations complete an adequate analysis of those extended lead times and their implication on cost, working capital, waste, missed deadlines and overall customer satisfaction.
11. Accepting Unnecessary Risk
Every procurement system should contain a risk assessment of supply disruption and the resulting implications. We see too many situations where strategic procurement is single sourced (due to price) without regard for the consequences of failure.
Best Practice Procurement Management
As you can see from this list, many organizations make it hard for suppliers to do the right thing. Best practice procurement systems include an integrated set of measured, high performing business processes that deliver ethical, effective and efficient outcomes.