Historically, procurement department is usually one of the least focused areas of a business. Except for businesses, which have adopted the Japanese concepts of lean management, and six sigma principles, most organizations seem to take the procurement part of operations largely for granted. In fact, unless the organization is facing emergencies such as a recession, or a natural calamity somewhere in its supply chain, the boards of even the biggest organizations are guilty of not giving this critical area the attention it deserves. As such, the process of rising up to modern challenges has been a slow one. Let’s have a look at some of the challenges facing the companies today, and how they are being handled.

Impact on Bottom line
One of the perils of misplaced accountability is the loss of focus on areas that provide returns in the long run. For instance, it can be easily established whether an increase in marketing spend will improve the bottom line. The same is true for research and development. However, procurement is an area where it is not easy to demonstrate how higher attention, or budget, will positively impact the bottom line.

Heads of procurement departments have not always succeeded in overcoming this challenge. It takes a dynamic procurement head with entrepreneurial spirit to come with inventive ways of making the board realize how their procurement has a direct impact on the bottom line. However, many organizations are stuck with passive procurement heads, who are quite comfortable in their cabins brooding over the worsening conditions around them.

Risk Portfolio
A quick SWOT analysis will throw up indications whether it is feasible to do business in particular locations. But, the supply chain dynamics of the modern world dictate more focus on cost control and quality, rather than, say, political risk. That’s why, people are ready to procure from companies half the globe away in China, and place their trust in these suppliers’ ability to deliver on their commitment. To give credit where it is due, most of these suppliers to have an impeccable record too. However, the risk does not arise from one supplier. But, when a company is operating with a globally laid out supply chain, the risks come from the cumulative of all these operations.

There are always natural calamities such as hurricanes, floods, earthquakes, and so on. Not to mention political instability, ocean piracy, and other such problems. Most importantly, there could be unprecedented controversies around sensitive areas such as child labor, taxes, and so on. The companies might get embroiled in these issues, even if such issues are located in tier-2, or tier -3 suppliers. Only some companies dedicate a sizeable resource in their organization to understand the supplier companies, investigate the supply chain in more detail, and minimize all such risks.

Substandard Processes
One of the most important roles of a procurement officer is to maintain excellent professional relationship with the supplier. This can only be achieved when the suppliers are treated in all fairness for their efforts. Often, companies tend to give more importance to the suppliers who provide less value at the cost of those suppliers who are providing more value. This hampers the relationship between the organization and its suppliers.

Secondly, every organization should deploy enough resources to inspect, and ascertain the quality of supply. There should be proper enforcement of contracts with the suppliers. Any lackadaisical behavior from the procurer side can be interpreted as an opportunity for more substandard supplies, inefficiencies, and less than the optimal supply pattern. A strong emphasis on achievement of higher standards within the procurement department is known to overcome most of such problems. This will also help improve the buying power of the businesses in the market.

Leveraging Technology
Globally, suppliers have been reinventing themselves to serve their clients better. Technology has been the biggest drivers of these changes. While most suppliers are now equipped to handle their client procurement requirements in real time, some businesses are still worried about the costs of investment in such technology. This is where the solutions from RAY ALLEN fit into the business, bringing both the software and services from the experienced team members to help the clients. Once the fruits of such technology (IT Asset Management and Contract Renewals) begin to translate into improvements in the bottom line of the business, the procurement heads can then push the companies’ boards for increasing the budgets for investing in such technology. If the board members are able to see the benefits first, they will be more comfortable in investing in this for the future.

Lack of Change-coping Mechanisms
Often, it so happens that a procurement head inherits a team that is completely out of tune with the changing and agile environment of today. Either they could have been set in the wrong direction, or simply might have been the victims of the organization’s general reactive culture. There is no easy solution for this issue. Any change in such an organization will be met with either severe hostility, or an absolute lack of cooperation. Such issues can pull the entire business down, despite a visionary procurement head working his best to bring results.

It is not uncommon among procurement heads to try the carrot and stick method, to persuade their teams to adopt to new challenges. The carrot is generally the procurement head’s vision and dream for the department. They can explain to their teams as to how simple and minor changes can make a big difference. The cost savings, improvement in efficiencies, increments in the bottom line, and the promise of recognition by the management in any form, can have serious effects on the morale of the team to change. On the other hand, the procurement heads can simultaneously create a sense of urgency in their teams. Failure to change can lead to bad appraisals, and even pink slips. This, although preferred by many managers, should be limited by way of implementation. It only works best as an add-on to the “carrot”, which is supposed to do most of the job.

What has worked in your organization? Have you experienced similar pressures in or with your procurement department? What course of action did you follow and what were the results? Let us know and contact us (link) to discuss!