- Poor Internal Needs Analysis
When a department or business unit identifies the need for a product or service, it kicks off the procurement process. The risks here are somewhat obvious:
- Overstatement of the need
- Understatement of the need
- Unrealistic schedule
- Inadequate budget
- Poorly designed requirements
Obviously, any of these situations result in wasted time and/or unneeded expense. Far worse, they delay critical product rollouts or projects. These delays frustrate today’s impatient customers and, nowadays, they’ll discuss it with their friends. This customer dissatisfaction has an outsized negative impact on your brand.
- Vendor Selection and Management
Procurement’s first task is to ensure a reliable and stable supply of the products and services your business needs. Without dependable vendors, needs go unfulfilled and projects are delayed even for big companies. As we’ve seen, the impact is outsized.
Globalization has further distributed supply chains across vast distances and timezones. As a result, one of procurement’s most important priorities is developing real relationships with suppliers. The most successful businesses are those that treat suppliers as partners and understand the benefits of truly collaborating with them.
According to a recent survey, almost 60% of companies have taken measures to strengthen the quality of their supplier relationships.
- Corporate Social Responsibility
It has now clear that customers prefer to purchase from companies they perceive to be ethical. The loyalty and price premiums for doing so are real and companies that genuinely commit to corporate social responsibility programs enjoy the financial rewards for doing so.
Millennials are the big drivers behind the movement to champion ethical and environmentally conscious companies. As the proportion of these younger generations grows, they are flexing their financial muscles to promote their agenda.
As companies recognize that they will be held responsible for their products from sourcing to distribution, procurement plays a critical role. It must ensure that suppliers adhere to the social, ethical, environmental, and fairness standards that the business itself promotes. It must vet and monitor suppliers and work with those that promote diversity and inclusion, commit to sustainability,
- Maverick Purchasing
Every company has to deal with purchases made outside the normal process. These purchases often incur extra costs but they also expose the organization to extra risks:
- Compliance risk from incomplete audit trails and an overall lack of control.
- Financial risk if this maverick purchasing overshoots budgets and reduces profitability.
- Competitive risk if the goods don’t meet standards and negatively impact the quality of your products.
- Brand reputation risk if customer expectations are not met.
- Lengthy Processes & Inaccurate Data
Missed deadlines cause delays and stress
It’s a business reality – products and services must sometimes be procured at the last minute in order to meet a deadline. Late projects are already a huge source of stress – the last thing you want is unnecessary internal bureaucracy that causes further delays and stress.
Errors and mistakes are another needless source of stress, delay and time waste. Inefficient processes also encourage maverick purchasing and the risks that entails.
As we’ve already seen, the downstream impacts such as slower product rollouts, quality issues, and brand damage are major concerns.
- Talent Shortage
To succeed in the 21st century, a business must attract and retain world-class talent. The procurement department is no exception. In fact, a recent brief from DHL Research predicts severe talent shortages for supply chain professionals.
Yet the majority of companies have taken zero steps to develop a long-term strategy to shore up their talent. As a result, they risk being unable to execute even if they have a solid strategy.
Further, as procurement’s priorities evolve, the core job has changed. It’s harder to find people with the right mix of tactical and strategic skills. Companies who don’t have a long term plan risk having to deal with a significant skills gap.