While the crisis of the last two years has provided modern procurement teams with the opportunity to adapt and improve, it has also opened up new procurement challenges that could leave organisations crippled if they are not addressed properly.
Procurement has evolved beyond just the traditional role of obtaining goods and services while reducing total spend in order to generate cost savings. Nowadays, procurement has expanded to establishing a new level of engagement with stakeholders and improving collaboration across the organisation.
This evolution, which has expanded the procurement team’s responsibilities to the point where it can impact their organisation’s bottom line, has created complicated and risky challenges that procurement professionals are pressured to solve as quickly and efficiently as possible.
Here are five key challenges that procurement teams are currently facing.
1. Securing supply lines while managing risk
During the pandemic, it was found that having either a single source, overseas supplier or a large vendor to deliver needed goods and services was greatly ineffective as the lockdowns and shortages affected the flow of supply lines. This, in turn, highlighted the value of secure supply lines.
Procurement professionals are now faced with the need to have a stronger focus on establishing uninterrupted supply lines for their organisation in case of disruptive unforeseen events. Strategies such as buffer stocks, alternative source indexing, and dual sourcing are just some of the ways procurement teams can consider to minimise future risks.
The pandemic has also seen the reliability of local small/medium-sized (SMEs) suppliers, whose nearby locations lessen the risk of shipping delays and bottlenecks that are occurring globally. And as the country reopens after multiple lockdowns, professional buyers can work with local SME suppliers as a secure supply line while keeping them in business.
2. Managing inflation
According to Forbes, Australia is currently experiencing its highest level of inflation with the Australian Bureau of Statistics (ABS) reporting the rate to be 6.1 per cent.
Australia’s inflation is caused by a number of factors, from the lockdown effects of the pandemic to the increase in consumer demand to Russia’s war against Ukraine. And as the global inflation surge is expected to peak in the country by October, procurement teams should be aware of how they use the organisation’s funds.
During inflation, professional buyers can use methods such as calculating net present value (NPV) and discounted cash-flow (DCF), stockpiling or spot-buying to protect profitability, and including price variation formula (PVF) in contracts to control their spending.
3. Adjusting to new stakeholder needs
While improving stakeholder relations is not a new challenge, the current state of procurement has seen the need for urgency, alignment, and proactivity. This insight showed the advantage of having stronger relationships with stakeholders, in which having a well-established network with them can develop a better perspective on improving the organisation’s core business needs.
Leveraging new and better relationships with stakeholders can help procurement professionals in determining new business priorities and approaches. By engaging with them, procurement teams can gain an understanding of their organisation’s strategic issues, cost-saving goals, value-add, compliance and organisational input.
4. Digitalising procurement
Organisations across multiple sectors are now digitalising their operations and activities to keep up with the hypercompetitive global network. In procurement, technology can help in creating a smooth and stable supply network between customers, regulators, and other stakeholders.
While this is one of the most difficult challenges in the procurement sector, automating one’s procurement process can greatly help in improving user experience (UX), supply-side service, risk protection, compliance to policy, efficiency and greater spend control (and savings). Using e-procurement platforms can also provide teams with spending analysis that can help them further understand procurement patterns.
Once technology can be used to collect and manage necessary data in procurement, an organisation can have a competitive edge against its competitors as it has the ability to satisfy rapidly changing customer requirements.
5. Managing procurement teams
Procurement leaders not only have to be on top of their duties to avoid risk and secure profit/cost gains, but they also have to ensure that their team is working at their best as they are responsible for initiating and authorizing each step of the procurement process.
In order for a team to have the capability needed to deliver the organisation’s strategy, a procurement leader should determine and address the skills that are needed. Establishing and equipping one’s procurement team with the right skill set is important when working across the organisation for payment issues, necessary funds and compliance with project cost requirements.