87 per cent of organisations have faced a disruptive incident with suppliers in the last 2-3 years. How can we work in more effective ways?
Transforming into a strategic procurement organisation is not an easy journey. But there are a few obstacles that procurement teams should address sooner rather than later when thinking about how to be more effective in procurement. Here are 6 challenges to tackle today for success in the future:
1. Unproductive business relationships
The majority of CPOs rate their current business partnering effectiveness at less than 70 per cent with hopes of greater than 90 per cent in the future. How can procurement become a better business partner? By creating a purchasing process that is the easiest, fastest and most affordable way for business partners to do their jobs. Users need what they need to do their jobs and they need those items quickly – and that’s all they care about. If you roll-out an e-procurement solution that is truly the easiest way for employees to request those goods and services within the natural course of their daily work, they’ll use the system and they will see the value that procurement is delivering. And when managers see how this process streamlines approvals and helps them better manage their budgets with real-time tracking, they’ll become champions of procurement as well.
2. Slow, inflexible approval workflows
Speaking over approvals, we’ve seen hundreds of approval workflows, each unique based on business maturity, locations, department structures and technologies. But a consistent challenge among many companies is that approval workflows often make purchasing more difficult for the requester. If requesters could make their purchases without needing to understand approvals or the inner workings of the procurement department, imagine how much easier it will be to get them spending in the preferred manner. Procurement professionals should look at ways to minimize the impact of approvals on the end-user. One way to do this is what we call “line item requisitioning.” This is when the approval workflow is configured so a single requisition/shopping cart can be split and sent through separate approval paths at the line item level. This means that items on the requisition that require fewer approvals get approved and POs are submitted, without being held up by other items that may take longer to get approved or require more reviews. And, the approvers only see the items on the request that pertain to them, making it quick and easy for them to sign-off on the items.
3. Supplier risk & fraud potential
87 per cent of organisations faced a disruptive incident with suppliers in the last 2-3 years. Risk inside of the supply chain remains a focus for procurement leaders. So, what’s the key to reducing risk? Transparency. The more transparency you have with suppliers, the more you can build up those relationships and better understand your suppliers’ needs. Perhaps you find out you have a key supplier that is struggling with cash flow needs – work with this business partner to understand their position and look at strategic payment programs that benefit both parties to mitigate that risk upfront. You can also leverage the wealth of data at your fingertips to pinpoint issues like this early on and better manage supplier data to prevent fraud.
4. Lack of spend visibility
If you want to know how to be more effective in procurement, I have two words for you: spend visibility.
Every strategic procurement initiative starts with knowing how 100 per cent of the company money is being spent – not “some” of the money, all of it. 40 per cent of CPOs are focused on consolidating spend, but if they’re not seeing the full picture, those efforts will prove futile. Spend visibility – from both direct and indirect spending – allows CPOs to do what they do best, including: consolidating spend, rationalising the supply base, leveraging volume buying, negotiating better contracts, sourcing strategic suppliers and more. The data needed to support all of these activities is in the company spend data.
5. Manual reporting and analytics
65 per cent of organisations are accelerating investment in procurement-related analytics. But you really need to accomplish 2 things before making this investment: 1) Capture 100 per cent of financial data 2) Focus on data science within the procurement department. If you aren’t capturing 100 per cent of your data by on-boarding all your suppliers, achieving 100 per cent user adoption and processing 100 per cent of your invoices through the purchase-to-pay solution, your analytics tool won’t have the data needed to give you the right insight. And, once you have that data, you need someone who understands how to turn actionable insight into results – so make sure your procurement team is thinking about the skills they need for the future.
6. The talent gap related to technology
Related to the skills needed for the future is the talent gap procurement is experiencing, especially when it comes to technology. 87 per cent of CPOs believe talent is the single greatest driver of procurement performance, and yet organisations spend less than 1 per cent of their budget on equipping and training their procurement teams. Think about the tools, technology and training your procurement team needs to keep up with organisational transformation and deliver value, then start developing skills in those areas now – procurement is only going to get more digital. Check out my recent post on bridging the talent gap in procurement for other tips on attracting, hiring and developing new talent for this function.
If you’re questioning how to be more effective in procurement, overcoming these challenges will put you on the course for success. At Basware, we have a heritage in helping companies transform, so you don’t have to go it alone. Reach out– we’re here to help.
These stats are taken from Deloitte’s Global CPO Survey