Procurement is one of the most critical steps in supply chain management. All of the other operations, such as manufacturing and testing, depend completely on it.
By optimizing your procurement process, you can speed up your operations and even reduce your overhead. However, many common issues can pop up during procurement.
And, poor procurement processes can lead to a 5X increase in costs. At the same time, valuable man-hours can be wasted as well. Every year, businesses in the USA and Canada are losing out on about 32 million man-hours due to procurement problems.
Here are a few of the most common procurement issues and how you can solve them:
1. Material and Service Costs
This is a common problem faced by many companies out there. Market rates are not under your control, and the same applies to supplier charges as well.
This makes it extremely difficult for companies to reduce their material and service costs. While these costs can’t be brought down, you can reduce the other costs involved in acquiring materials.
About 54% of companies are still using paper-based invoices. This can be a time-consuming process and leads to a waste of man-hours.
By using software to automate your procurement process, you can reduce the cost-per-invoice by almost 90%. Similarly, your invoice exception rate can also be reduced to 10.7%. This can help you reduce your overall material and service acquisition costs.
2. Supplier Lead Time
When it comes to procurement, one of the most important factors is time. If you don’t receive your materials and services on time, all of your other operations may be affected. Because of this, you need to look at the supplier lead time. This is the time that the supplier takes to process the materials and send them to you.
To reduce the supplier lead time, you need to find high-quality vendors who will deliver the materials and services at the promised time. While it can be challenging to find them, you can do so by conducting thorough audits.
3. Communication Issues
Procurement seldom involves just a single department. Usually, you have multiple departments working together to procure services and materials.
To ensure that the process is streamlined, you need to have a communication plan in place for all departments. However, many companies face issues with this, and that results in miscommunication of information. And that may lead to duplicate payments. A strong communication system can help reduce miscommunication and prevent this issue.
4. Documentation
Documentation is an essential part of procurement. And you need to have a plan to manage the numerous documents related to it.
However, many organizations use ineffective processes and tools, which results in mismanagement of documents. In extreme cases, this can result in procurement fraud as well.
Procurement fraud can cost your organization and even harm your reputation. However, by digitizing your documents, you can make them more traceable and increase transparency.
These are but a few of the most common issues that can affect the procurement processes of companies. To find out more about how you can fight these issues, you can check out this infographic by PurchaseControl.
Author Bio – Michael
Founder & CEO with international experience in Procurement and Spend Management Software – ‘PurchaseControl’
