When a procurement organization's vision doesn't look beyond savings, the chances of getting stuck in a tactical shell increase. Sometimes, transactional issues might appear critical for operations, but in reality, they are short-term and with limited impact. To realize its full value potential, procurement must overcome its evolutionary tactical barrier and become a more strategic function.
The procurement industry, as we know it, is changing, and as per the unfolding trends, it's rapidly evolving into a more prominent function that guides the overall strategy within an organization.
The Challenges Faced During Procurement Transformation Journey Every journey brings with it numerous hurdles that tend to thwart zeal and efforts. But, for procurement to truly evolve, answering these challenges is essential.
1. Stakeholder's Resistance to Change The first step in this transformational journey is to engage key stakeholders in a conversation about their goals and expectations of procurement. Listening to your colleagues' distinct and often contrasting needs and expectations might tip you over the edge, but it's a critical step moving forward. Fulfilling the cost-cutting, sustainability, supplier diversity, quality and time constraints, and other expectations is an exhaustive catalog of needs, but your job at this point is just to listen. Listening to stakeholders' expectations is crucial because it helps you align your procurement strategies with the priorities to uphold your organization's vision and goals.
2. Procurement Team Lacks Critical Skills Leading procurement organizations are typically built upon a skilled and talented workforce with regularly refreshed and improved capabilities.
3. High Number of Suppliers Having too many suppliers means spending too much of your team's time and effort on managing those suppliers.manage more than ten vendor relationships for a single initiative?
Fewer suppliers mean fewer costs and hours spent on managing relationships. Increased discounts due to preferential or volume pricing. When a supplier sees that you're ready to spend more money, they will likely offer you better pricing. Consolidating your vendors means a lesser risk of contract noncompliance. When you have fewer contracts to focus upon, it becomes easier to comply with vendor agreements. Fewer suppliers also mean better supplier relationships where applying outcome-based performance measures and assessing performance and establishing a reward system for vendors is possible. 4. The Cost Factor The cost of pretty much everything is on the rise, especially post COVID.
Naturally, this cost battle asks the procurement organizations to follow a more strategic approach to buying their resources .
This means focusing on lowering the total cost of ownership and finding new, innovative ways to reduce the lifetime cost of purchase and not just the upfront costs.
5. Maverick Spend Maverick spending is a matter of grave concern for many companies worldwide. Every year, companies spend thousands of dollars to tackle it. According to Chartered Institute of Procurement & Supply (CIPS) , maverick spend contributes to over 80% of a company's total spend.
As per the latest Hackett Group report on Maverick Spend, as much as 16% of negotiated savings are lost due to maverick spending. The report further emphasizes how the maverick spend problem goes beyond lost savings and affects the quality of the goods or services. This, in turn, holds the potential to impact customer satisfaction and expose a company to unnecessary risks.
Gaining control of your company's maverick spending is key to becoming a more transformative organization. By gaining visibility into every purchase made by the company, procurement comes up with the right strategies to save money and protect the organization. Organizations that wish to tackle the maverick spend problem should educate their stakeholders on its negative impacts and the use of technology.
6. Contract Compliance Even top-performing procurement organizations need to enhance their contract compliance. Poor contract compliance causes savings leakage and legal and financial risks. That's the reason why contract management is also one of the hardest things for procurement to master. The way forward is to ensure your organization's spend is in line with the pricing and terms of the negotiated contract.
Contracts are essential to any business. However, complying with contract terms can be challenging for many companies due to the lack of visibility into its details.
Therefore, to help your organization move to the next level, you must manage your supplier contracts effectively.
Most top-performing organizations use cloud-based solutions that offer a "single source of truth" for their procurement data. These solutions provide an enterprise contract management system that feeds data from disparate sources into a central and frequently updated hub.
Taking a Holistic Approach Towards Procurement Transformation Organizations must evolve and adapt to new transformative changes in these rapidly changing times to remain viable and competitive.
This means your procurement department needs to move to a more strategic approach to take more control of its spend. The right framework is what you need to allow your procurement department to learn and adapt to emerging technologies. No matter which industry you are in, having a centralized hub for procurement data is imperative for any business. The new era of procurement is driven by data and fuelled by digital technologies and advanced analytics that support the full range of your business objectives to gain momentum.How does Ignite Procurement help companies through their transformation journey?
— Transparency. A single source of information to improve C-level's understanding of the value procurement is delivering.Higher savings. As more spend is under the strategic lens, procurement operates more efficiently and effectively. Improved contract compliance also translates into higher savings.More value . Collaborating with business stakeholders early in the process helps build innovation and create value.
Read our hands-on resource on Strategic Procurement to begin your procurement transformation journey!
.jpg){kind=spacer}
.png)
.png)
.png)
