Top 10 procurement mistakes to avoid
One of the best ways to add value to your business is through a competent procurement process. In its simplest form, procurement encompasses all aspects of purchasing, such as facilities management, acquiring goods, property, or services. Beyond this, procurement management includes intricate strategic planning and supporting teams to improve internal procedures as well. Due to the involved nature of the procurement function, any mistake along the timeline can lead to disastrous consequences. The impact can reverberate through all business activity. This means it is absolutely essential to be mindful of all the potential pitfalls, below are ten common mistakes to avoid throughout the procurement process:
1. Not guarding against future disruption and uncertainty
In this time of frequent and intense disruption, it’s clear that organisations must be prepared to act flexibly and strategically on any potential scenario that may arise. An example that several organisations encountered during the COVID-19 pandemic was the swift implementation of export restrictions for Personal Protection Equipment (PPE). The rush by PPE suppliers to receive the export licence and fulfil the global demand was immense and many were ill-prepared. Even before the Covid-19 crisis, swift technological change, increasing economic interdependence, and growing political instability had obscured future prospects. Another example is in response to the impact of climate change, authorities established new carbon taxes and stricter environmental regulations on emissions. Any business, big or small, should consider how their procurement function could be altered in the future and be prepared for any such disruption.
Though we understand, the prospect of reviewing a company’s entire procurement situation can very much intimidate the uninitiated. There are distinct benefits to enlisting professional service companies that specialise in procurement opportunity and scenarios to provide helpful direction to your business. Strategic foresight also enables you to identify opportunities and amplifies your ability to seize them at the right moment. The ability to not fixate on certainties means that businesses can spot disruption events faster, model new solutions, adapt more effectively and thrive where others fail. In this view, “what if?” thinking is essential. It’s the businesses that look forwards with a positive attitude, confident in their leadership, purpose and people, and ensure that decisions are supported by the data, that will be able to navigate the future that bit more easily, no matter how disruptive the path ahead might be.
2. Poorly-designed requirements and inadequate budget
A company cannot begin acquiring goods and services without firmly establishing what the business needs. Prudent purchasing decisions start with a carefully considered strategy with requirements that aligns with the company mission statement and values. Without a plan, you will likely miss important procedures and considerations, such as attention to order specifications and project-based budgets. Implementing these requirements necessitates collaboration among stakeholders, finance teams, and procurement professionals.
After the parameters are established, it is then essential that the budget is created and reviewed in as much detail as possible. The benefits of accurately budgeting is it provides transparency across the business, allows the accounts department to be better positioned to consider spending and cost-cutting, and will showcase price increases over the years to accurately measure future rises. At the end of the day, if the requirements and budgeting processes are inefficient, it might mean purchases are needlessly wasteful and overpriced.
3. Not attracting staff with the right skills
In recent times, there is increasingly fierce competition to attract and retain the best workers. “The Great Resignation” and “The Great Reshuffle” are what people are today calling it. Employees have revaluated what aspects of work are most important to them and many are moving on. But how can we retain staff and attract new ones? Why an individual chooses to work for you and stay with you is multifaceted, often they are attracted to company reputation, company culture, personal fulfilment in the role, the possibility of career progression and of course, salary. There is a drive for significant workplace transformation, where not only individuals are changing their perspective but businesses are changing and reshaping together with them. Examples include allowing working from home, providing training and supporting growth, both mutually beneficial to the company and individuals.
The other factor to consider is you need to be looking in the right places and writing a compelling advert with all you can offer to attract talent. Not only this, but you don’t necessarily have to find someone who is the full package, someone with the right qualities can upskill with you to become the perfect procurer. You can also consider having interim specialists on hand when you need them, perhaps to work on an individual project or assignment. Working with professional procurement companies can help a business to find and work with prequalified specialists as well. What is important is to choose what works best for your business.
4. Poor selection of suppliers or not correctly preparing for risk in the supply chain
One of the biggest challenges in procurement is making sure you choose dependable suppliers who match your ethics and values. The result of choosing the wrong suppliers can lead to low-quality products, products that do not match the original agreement, late delivery, non-compliancy, unscrupulous ethical standards, poor team relationships, among many other issues. There can be a correlation between a low-cost and low-functioning supplier. Much like point 1 referring to future disruption, there are a broad range of items to manage and think about, including economic, environmental, political and ethical considerations. Bearing in mind potential risks in the supply chain is essential to ensure there are no costly surprises.
A potential solution to improve supplier selection is to improve the overall supplier selection process. This includes formulating better-worded questionnaires, which will help ensure that the supplier is a good fit. Supplier visits and audits would also be recommended to help ensure that the supplier is not participating in any unethical practices and to make sure they are keeping their promises / obligations.
5. Non-compliance and conducting a crude contract management process
A “contract”, in its most basic form, is a legally enforceable agreement between two or more parties including the exchange of money, commodities, services or promises. Contracts will continue to play an important part in every industry as companies continue to strive to get their business done and dusted more swiftly while providing the best for their clients. Contracting used to be quite a straightforward and simple procedure; a contract began with an agreement to trade and ended when that exchange was completed. However, with some contracts now worth millions of pounds and involving several parties from various industries, the necessity for contract management expertise has become important. Even your best negotiator might struggle especially when it comes to high-value propositions. Contract management is considered a cumbersome process nowadays as there are many pitfalls that can lead to severe consequences like bad service, wasted money and even legal proceedings, which not any single business wants to have to deal with! This is why it is important to have a carefully considered plan, to test market pricing, to ensure you are agreeing the functionality you actually need, and you do not accept inappropriate levels of contract risk. You must do all you can to ensure you have full visibility and avoid inconsistency among agreements.
Another solution to this, could be to use the supplier’s proposal, within the contract, making their promises, legal obligations. This will help minimise non-compliance when partnering with a new supplier. Organisations should most definitely mention Key Performance Indicators (KPIs) and Service Level Agreements (SLAs) within the contract so that their supplier/s are legally obligated to perform the service according to the set expectations.
6. Lack of control & visibility of spending
Purchases that are made that are unaccounted in the procurement process will lead to overspending. Such uncontrolled spending can ultimately be expensive for businesses and signify a real lack of control. When items purchased cannot be justified using capital outlay or material inventory, the resulting loss of revenue and control is a significant problem for organisations of all sizes to tackle. This is why it is important to encourage transparency among the workforce, bring rogue spending under management and to introduce structured tracking, including accurate budgets, assigned responsibilities and realistic timelines.
One way in which organisations could mitigate this risk is by using corporate credit cards / Group Procurement Cards GPCs with delegated authority. This will ensure that unnecessary spend is minimised and it will help to reduce bottlenecks, such as a directors needing to approve a lunch expense.
7. Lack of oversight and audit trails
Much like point 6 above, overall oversight of the procurement function and processes is fundamental. It is not just how you are doing it now, but also potential opportunities that may well be missed without looking at the big picture. For example you may have projected procurement savings in your upcoming budget, but these are not then reflected in the bottom line because that projection was not enforced, or perhaps they have been spent in other areas without being detected. By having oversight it also allows you to adjust for various changes in specifications and needs. Without building in proper flexibility, controls, and visibility, you cannot make adjustments to processes when it may very well be best to do so.
8. Ignorance of practices and regulations
When it comes to procurement, ignorance of legislation and regulation is absolutely unacceptable and the result of this can be devastating. Consequences can lead to written complaints by unhappy customers, long and turbulent legal challenges, it can lose bids and eliminate the possibility of subsequent bids and even go so far as ruin an organisation’s reputation and brand image. Looking at it from another perspective, your only option is to account for regulation in procurement and take ownership of specifications in the market in order to conduct it justly and accurately.
9. Choosing the lowest-cost contractor & only considering the bottom line
According to entities like the Fair Work Ombudsman and the Social Value Act, companies cannot choose the cheapest contractor while ignoring moral implications such as environmental destruction, unjust treatment, and low-paid workers. Any company to do so would be first and foremost, immoral, but also risk their reputation and would potentially suffer legal ramifications. Beyond that, when considering partners to work with, it is not right to just think about cost, it is also about securing better social value, social cohesion and equality to improve future outlook for everyone. Of course we want quality goods and services for the best price, but it is important to add social responsibility to avoid the terrible impact on our environment and society globally. Throughout all stages of the procurement process you have an opportunity to prioritise social value and ensure fellow partners align with your company values as well. If they do not meet the standard, it would be best to find new vendors that do. After all, you will be judged not only by what you do today but by how well you chart a course toward tomorrow.
10. Not engaging procurement professionals from the outset of a project
The procurement process affects several business functions and requires a mastery of supply chain management, sourcing raw materials, and meeting purchasing goals. For this reason, procurement professionals come in high demand, and many companies even have an entire procurement department led by a chief procurement officer. It is always better to secure a procurement professional before taking on projects, we see too often individuals come to us after things have gone wrong which means money has been wasted which needn’t have. The reason for engaging professionals at the outset is that in the end you actually save a lot of money, plus you are able to avoid all the mistakes listed!
As a leading procurement consultancy, we have assisted customers in avoiding all of the above. That’s a lot of value added and money saved. If you are encountering procurement or supply chain issues, we would be pleased to share our experience with you – simply contact one of our procurement experts on the link below:
