Whether you are running the procurement department in a company, operating a business or managing properties and facilities, your ability to successfully source quality goods and services reflects the effectiveness of your procurement system.
In other words, the procurement process plays a vital role to the overall success of your organisation.
Here are the ten most common procurement mistakes that could be getting in your way of successful procurement:
1. Over-reliance on one supplier
Over-dependence on one or a small handful of suppliers can be detrimental on your procurement system. With an entire ecosystem of vendors on B2B marketplace platforms, why close yourself off to a world of opportunities? Having supply chain flexibility and connecting with multiple suppliers helps to minimise the risk of facing stock-outs from a single supplier and maximises your opportunities to land more competitive deals. It is always good practice to re-assess the vendor B2B market every now and then to keep up with better prices and products from newcomers in the procurement market.
2. Poor vendor relationship management
To ensure a steady supply of quality products and services, it all boils down to factors from sourcing from the right suppliers to monitoring vendor performance. Good vendors that are compatible with your business needs are difficult to come by. Investing in a few necessary steps today to retain and maintain a healthy relationship with valued vendors translates to an even bigger investment to your business’ needs tomorrow. Communicate with your suppliers periodically to build up a relationship and stay up to date with opportunities for savings like discounts and programs or new product launches.
Evaluate vendor performance against internal KPIs and create an approved vendors list. Not only is this a risk management strategy but provides you with better visibility on vetted suppliers who are more likely to work with your business needs for improved pricing and terms. Over the long run, centralising suppliers in an approved vendor list makes it easier to develop important business partner relationships.
3. Failure of enforcing compliance policy
To govern your business’ procurement strategy, it is crucial to establish clear internal and external policies. Without internal compliance policies in place, purchasing employees are likely to use different methods when performing daily procurement tasks. This affects the smooth-running and standardisation of your business’ procurement. Company procurement policy guides employees to adhere to purchasing practices and equips employees with the confidence to overcome obstacles. As businesses scale and adapt to changing market conditions, periodic updates of compliance policies need to be performed to best align them with the business’ current needs.
Share an effective external compliance policy to your vendors because it cultivates dependability, stability and ethics in the vendor-buyer dynamic. Vendor enforcement policies communicate your expectations to vendors and ensures that vendors are delivering at the highest standards you have set. Laying out clear purchasing terms and conditions shields you from potential legal problems and provides assurance that goods and services will be delivered exactly as described and agreed upon in the transaction.
4. Weak contract management process
The multi-stage process of procurement makes your business highly susceptible to violating legal requirements which you might not be conscious of. Procurement legislation needs to be well-considered in relation to your business model and vendor engagement. Staying on top of your contract management process by verifying that data inputs are correct, complete and up-to-date helps ensure that vendor contracts are accurate and legally compliant.
5. Error-prone manual internal processing
When every stage of the procurement process is manually executed, there is a higher likelihood of human-errors that exacerbate supply chain risk factors. Common manual errors range from inaccurate or missing data, delayed approvals to lost documents. Incorrect orders are often made because of erroneous data inputs. Additionally, with a vast amount of paperwork and documentation that gets transferred to different stakeholders through the complex procurement process, misplaced or lost documents are an all too familiar occurrence. Such incidents may come across as trivial daily setbacks but could end up in costly long-term legal proceedings. Switching to automation of manual processes centralises physical documents and data logs which drastically reduces these foreseeable errors altogether.
6. Budget Overruns
Whether you are procuring for a small or large company, last-minute rushed purchases are a common recurring theme. When businesses experience rapid growth, decision-makers are under pressure to scale on par with the growth pace. This results in an unexpected spending spike from overriding procurement guidelines to make panic purchases.
Inaccurate orders are also a common factor to going over budget. With multiple supplier contracts, it can be overwhelming to stay on top of contract renewals and expirations. Ordering errors arising from incorrect items or quantities end up as costly mistakes especially when order reversals are not made on time.
Even when businesses have made conscious efforts in core procurement areas to make cost savings, it is still possible for cost saving leakages to happen. A common culprit of such phenomena is maverick spending. Due to communication gaps across department units in a company, decentralisation between teams create deviations from purchase order processes. Budget overspends can be mitigated when control and visibility on purchasing workflows is reinstated through a centralised procurement system in place.
7. Not negotiating
As the saying goes: if you don’t ask, you don’t get! Similarly, in procurement, many assume that supplier quoted prices are firm and accept them as-is. However, little is known that negotiation is the heart of procurement and sets a strong vendor relationship in motion. Some may negotiate based on price, thinking that the lowest deal has been landed when this might not actually be the case. There are many other factors to consider in procurement negotiations from freight charges, parking, lead times to other up-charges. Such factors tend to be additional hidden charges that might be missed during negotiations. It is best to evaluate all fees involved as part of your negotiations. Participating in a B2B marketplace with a vast selection of vendors gives you more choice and allows you to compare and negotiate with different vendors.
8. Not taking commercial conditions into account
Ensuring that robust purchasing terms and conditions are in place protects your procurement orders from issues and legal complications. Such terms and conditions act as a guarantee that goods and services defined in the purchase order will be delivered. Commercial conditions ranging from warranty-extensions of goods and services, payment guarantees, or liquidated damages will have a direct influence on price levels. When submitting an RFQ, buyers should integrate commercial condition preferences for vendors to incorporate such costs within their quotations.
9. Decentralising key decisions
When making major procurement decisions that will impact multiple stakeholders or departments, it is important to include input from all relevant stakeholders before any decision is finalised. Open and interactive communication with feedback, request verification and centralised approvals at different points of the procurement process are important for a good outcome.
10. Refusing procurement software
Effective use of automation technology eliminates many risks and common mistakes in procurement workflow processes. Here is how a reliable e-Procurement software can unlock efficiency across the entire procurement process whilst saving time and money:
- Streamline procurement process – A standardised procurement workflow that all employees can follow and understand. Procurement employees can work through different stages of the procurement system quickly to identify hiccups easily.
- Less manual errors – Keep duplicate data entries and paper handling errors in the past with clean and organised digital forms for contracts, tenders and purchase orders that can be instantly searched and tracked
- Improve communications with internal and external stakeholders – Create clear statements of need to address and get reminders of time-sensitive requests
- Less procurement delays – Manage and collaborate an extensive network of vendor relationships on a central platform to minimise delays in your vendor supply chain
Successful procurement is a marathon, not a race. Avoiding these top common procurement mistakes can prevent costly oversights. Furthermore, adopting procurement software with automatic routing means you and your team can focus on your core roles and responsibilities. Get started with Really’s procurement platform for your procurement journey.
Really is a premium Software-as-a-Service (SaaS) solutions platform that hosts Singapore’s leading B2B marketplace. Running on cloud infrastructure, Really digitalises procurement processes and workflow automation all in a single platform. Motivated by the aim to revolutionise the traditional procurement landscape, users who embrace Really experience are empowered today for a new and better procurement journey tomorrow. www.really.sg
Why You Should Use Really:
Really Easy – Create Tenders, Manage Vendors, Organise Contracts, Send Requests and more on a centralised all-in-one dashboard
Really Connected – Access a network of over 6,000 trusted vendors to source and procure across a wide selection of categories for different goods and services
Really Negotiate – Place direct POs or create RFQs to tender and compare bids for the most competitive prices and terms on the market, and work with the best vendors that tailor to your needs
Really Communicate – Share and exchange requests and information with different internal and external stakeholders to build effective relationships when you streamline communication
Really Consistent – Standardised forms, functions and data entry across a systematised interface to align all stakeholders in understanding how to access and optimise use of different documents.