Improving procurement efficiency in supply chain operation
While every generation will experience challenges related to global upheavals and socio-economic distress, it is safe to say that the past two years have been particularly turbulent for the supply chain industry. There have been massive disruptions, including pandemic-related delays and political tensions playing out across some of the world’s leading nations.
Brexit, the U.S.-China trade war, a general geopolitical trend toward nationalization
— and lately the COVID-19 pandemic — have changed the priorities of many supply chain leaders. They now need to balance cost and operational efficiency with greater supply chain resilience.
These disruptions are simply beyond the control of business owners, but there are still measures that can be implemented to improve the supply chain. Procurement efficiency is key to ensuring processes run uninterrupted. Unfortunately, too often this area is overlooked as procurement teams get trapped in a routine without updating systems and processes.
What is procurement?
Within the supply chain, procurement refers to all activities involved and related to obtaining goods and services. Where companies once used the term synonymously with purchasing, the latter is now viewed as the first step in the procurement process.
Some of the processes involved in procurement include:
- Sourcing goods
- Purchasing goods
- Negotiating terms of sale
- Updating payment terms
- Receiving goods
- Inspection of goods
What are the challenges related to procurement?
There are many global events currently impacting the procurement processes. And while the ripple-effect of these large-scale challenges are undeniably detrimental, there are also smaller-scale influences on procurement efficiency that need to be addressed in-house. Here are some of the key challenges, and the best practices for improving procurement in supply chain.
1) Digital Challenges
A tumultuous year of change has highlighted the need for enterprise-wide digital acceleration. Yet, in a study by Harvard Business Review, 92% of procurement leaders described their digital processes as less than best-in-class going into the pandemic.
Harvard Business Review
Digital limitations could include the use of too many ERP systems with no consolidation, a lack of effective analytical tools, and poor data visibility and quality, to name a few. Because of these limitations, the procurement team could be facing a multitude of challenges such as volatile demand, disjointed collaboration, and, therefore, disrupted supply chains.
2) Personnel Challenges
The labour force can also prove problematic when it comes to procurement. As with any industry, companies could suffer from high turnover rates, a limited supply of skilled labour and service providers, as well as the challenges associated with securing the right personnel for the position because of remotely based operations.
3) Lack of negotiating power
In the global supplier field, a business might be held back in terms of limited procurement negotiating power. These challenges are further compounded by legislative requirements and the need to procure goods from low-cost countries. Without the necessary information at hand, it is difficult to implement adequate forecasting for business and embark on successful procurement negotiations.
4) Division between procurement and supply chain operations
Although many focus on improving procurement operations in isolation, true efficiency can only be achieved by integrating suppliers with supply chain operators. Too often, there is a divide between procurement and supply chain operations which can lead to supply shortages, excess inventory, or extended shipment times.
How do you improve procurement efficiency?
Below are some of the key strategies that companies must consider in order to address these challenges and improve procurement efficiency.
1) Developing an agile, resilient procurement process
If there is anything the past year has taught us, it’s that change is inevitable. Enterprises were forced to learn how to adapt as markets and consumer habits fluctuated widely. With an agile and resilient procurement team, companies can adapt to current environments while also planning strategically for future disruptions.
Harvard Business Review
The global uncertainty and resultant disruption to the supply chain indicated quite clearly how procurement can create stability amidst the turmoil. Procurement teams need to incorporate risk management and develop skills to pivot and adapt to ever-changing circumstances.
2) Incorporating automation for increased visibility
In a recent Gartner survey, only 21% of respondents stated that they have a highly resilient network today, meaning good visibility and the agility to shift sourcing, manufacturing and distribution activities around fairly rapidly. It suggests that increasing resilience will be a priority for many as they emerge from the current crisis. More than half expect to be highly resilient within two to three years.
3) Identify inefficient processes
Sometimes the best step is to do a thorough audit of the existing processes and identify what is working and what is not working. There should be consultation with teams and relevant stakeholders to get their input on what is best to keep, cut and refine in terms of procurement.
No longer solely focused on cutting costs, procurement’s ability to build and maintain deep supplier relationships remains critical in enterprise recovery. Amidst volatile demand, changing consumer habits, and shifting markets, supplier relationships were foundational in ensuring enterprises could recover and ultimately thrive during uncertainty.
Harvard Business Review
Through the aforementioned automation, procurement teams can communicate with suppliers in real-time to address any potential disruptions. By harnessing the power of supplier networks, you are able to improve procurement efficiency and effectively boost business. You are also better positioning yourself as an organisation that prioritises relationship-building, making you more likely to attract the best personnel in the business.
The turbulence of the past few years has shown that change is inevitable, but the more streamlined the supply chain processes are, the better-prepared companies will be, to weather the storm. Supply chain managers need to analyse their existing procurement process and identify any areas of weakness before the next global disaster derails operations.
The benefit of automated systems cannot be overstated in increasing visibility, but this does not mean that the personal element should be overlooked. Companies that work on building supplier-procurement relations will bridge the gap between procurement and supply chain for a much more efficient system.