Purchasing problems and solutions: 10 common challenges
If you are a purchasing manager struggling to meet your saving targets, you’re not alone. We’re here to help with our top 10 purchasing problems and solutions.
According to a report by Ardent Partners, 2022 savings targets for procurement teams is almost 19% lower than the last year. Although cost-saving has been a top priority for a long time, new requirements in procurement are surfacing and bringing challenges with them. Technological advancements are also rapidly changing the responsibilities of purchasing managers.
Now is a crucial time to re-evaluate the importance of purchasing in the overall organization strategy.
So, what are the common challenges purchasing managers face today, and how can they address them?
1. Risk management and mitigation
Risk management and mitigation is a primary purchasing challenge today. Before, purchasing managers often prioritized spend management. Although this is still an important part of their job, strictly working with low-cost suppliers isn’t always the best way to manage spending. Companies that adapt to supply chain volatility can swim against the tide.
With the current state of supply chains, purchasing managers need transparent market and supplier intelligence. They need to know the risks of working with certain suppliers, products and industries. Otherwise, they risk facing purchasing issues and damaging their company’s reputation.
One way organizations can actively manage and mitigate risk is by diversifying their suppliers. This helps purchasing managers avoid purchasing issues such as supply shortages and delivery issues.
Diversification is no easy task since most tier-one suppliers often use the same factories, ports, and sub-suppliers. Therefore, purchasing managers must gather supplier intelligence to avoid running into the same purchasing issues with different suppliers.
2. Lack of visibility
Currently, manufacturing, labour, and raw material costs are rising worldwide. As a result, suppliers are passing these price increases on to customers. Some suppliers are also using this as an opportunity to raise their overall prices.
Purchasing managers need reliable supplier intelligence for quick decision making. In 2020, 41% of procurement leaders found their supplier data inadequate. A lack of supply market and supplier visibility impacts company spending, negotiations, supplier partnerships, and more. That’s why purchasing teams must ensure they have accurate and timely information about the supply market and suppliers.
3. Collecting accurate data and insights
Company inventory, standing purchase orders, upcoming contract renewals, market pricing, product catalogues, supplier KPIs, and more provide valuable insight when purchasing.
To make solid purchasing decisions, purchasing managers need accurate and reliable data to prevent purchasing issues that may result in inventory shortages or excess, and helps keep track of spending and contracts.
For example, gathering accurate PO data can help purchasing managers conduct three-way matching. No purchase is complete without cross-checking purchase order data with what was negotiated with the suppliers. In case of any discrepancy, such as delivery quantities not matching the amount invoiced, purchasing managers can take action before it’s too late.
When purchasing teams can’t access this data easily, organizations suffer financial losses and miss out on strategic opportunities. A reliable purchasing software collects accurate data and streamlines the purchasing process and dramatically reduces human errors.
4. Implementing digital technologies
Purchasing software is necessary to capture accurate and critical data that steer organizations away from financial losses and bad partnerships.
However, some purchasing teams still haven’t integrated digital technologies into their purchasing process. This is primarily because of the costs associated with digitizing and automating their entire supply chain.
But organizations can’t afford to not use technologies such as purchasing software. Technology is key to future-proof an organization’s growth and profitability. Technology also gives organi a big picture of how purchasing and procurement fit into larger organization goals.
Purchasing and procurement teams must choose the right procurement software that ensures efficiency and profitability in the long term.
5. Building rapport with key stakeholders
Gone are the days when procurement managers reviewed spending after it happened. With new spending and analytics tools, companies can track spending before it even occurs.
That’s why procurement departments must work with stakeholders throughout the organization. Procurement leaders need to know what each department needs, who makes purchasing decisions, what the recurring orders are, and how much they cost.
Any purchasing issues the procurement department encounters can affect the company’s bottom line. By aligning themselves with every department in the organization, purchasing professionals can ensure that department purchasing needs are included in the organization’s budgets and decision making process.
6. Implementing compliance
Compliance is another purchasing problem as purchasing policies are often difficult to implement within organizations.
Without compliance rules and policies, a company’s operations become vulnerable to reckless spending, potential litigation, and more. Compliance is also important to achieve supply chain transparency, sustainability, and risk mitigation.
Organizations must have a clear set of compliance rules for both internal teams and external partners such as suppliers. This sets the standard for each department’s spending and supplier performance. It also protects companies from fraud.
Again, purchasing software can help by granting select users in each department purchasing and approval access.
7. Creating or using contracts
Purchase orders usually act as a binding contract between an organization and the supplier when the supplier accepts an order. The PO states product specifications, order description, quantity of items, the price, and payment terms.
However, organizations need separate contracts that define their working relationship with their suppliers. Therefore, contract management is an integral part of procurement. Contracts protect companies from litigation issues and put agreed-upon pricing, delivery and product standards in writing. Both the organization and supplier must abide by the contract terms.
8. Optimizing the purchasing process
Purchasing managers are responsible for identifying company requirements, selecting the best offers, placing orders, accepting deliveries, and processing payments.
When companies use manual processes, there is room for error and things move much slower. Purchases start with an email or a phone call, end up on a spreadsheet, and are then recorded by an accountant when they receive the invoice. This manual process hinders an organization’s growth and profitability.
Purchasing problems that can occur with a manual purchasing process include: ordering wrong items or quantities, repeat orders, lack of safeguarding for purchases etc.
On the other hand, procurement automation saves time, money, and reduces errors. Each step is automatically recorded to ensure unnecessary expenses are avoided, and the best possible offers are accepted, received, and paid as agreed with the suppliers.
Purchasing managers are responsible for optimizing the purchasing process and therefore are tasked with finding the best possible solution.
9. Issues with deliveries
Another purchasing problem is late, incomplete, or damaged deliveries. These issues cause delays in delivering products to customers and threaten business continuity.
Recording and periodically reviewing supplier performance is one of the ways purchasing managers can expect fewer problems with deliveries.
However, there’s still the challenge of gaining visibility into the supplier’s processes, including delivery routes and timelines. This kind of supplier intelligence is very valuable in avoiding delivery issues.
10. Choosing the right vendors
Purchasing managers must choose the right vendors and suppliers to minimize the probability of having problems with deliveries.
Properly assessing suppliers means making sure they have the resources to fulfill orders and references that back them up. For example, checking the supplier’s bank references can add another layer of trust, removing any doubt of financial problems such as low liquidity or bankruptcy.
Purchasing managers should make sure to complete the necessary background checks before placing an order with a supplier. Ideally, they would have access to previous order data of the supplier so that they can check their performance.
From making strategic sourcing decisions to maximizing saving opportunities, purchasing managers have a great impact on their company’s profitability, growth and productivity.
If you are a purchasing manager, you can turn the purchasing challenges we mentioned into competitive advantages by equipping your company with the right tools, technology, and data insights.