When Good Procurement Goes Bad
7 Procurement Mistakes and How to Avoid Them
by Salim Khalife – Founder, President and CEO
Procurement is one area of enterprise operations that doesn’t make the news very often. And that’s probably a good thing. While procurement scandals may not be as common as these infamous accounting scandals, mistakes and even malfeasance can and do happen. Here we take a look at seven procurement mistakes — and how to avoid them.
1. Absence of a procurement audit trail
An audit trail is essentially an entire history of a transaction — the who, what and when of every interaction with the transaction. One of the primary benefits of maintaining a procurement audit trail is to deter and detect potentially fraudulent activities. Think your small business is immune? A 2018 report by the Association of Certified Fraud Examiners found that the median business loss for businesses with fewer than 100 employees was $200,000, nearly double that of the $104,000 median loss reported for companies with 100 or more employees.
2. Not sharing data across the organization
Data silos — discrete repositories of information under the control of one department and not shared with other departments — can hamper growth and efficiency in your business. Data silos can result in duplication of efforts, bottlenecks, and missed opportunities. They typically occur not by design, but due to lack of integration between the software applications different departments rely on.
4. Going over budget
While almost one-third of companies surveyed in this 2018 Levvel Research study have an electronic budgeting tool in place, the majority of respondents either have a manual process or no process at all for monitoring procurement compliance against indirect spend budget.
5. Failing to enforce policy
So you’ve negotiated a competitive agreement with a new supplier that should save large sums of money on office supplies. Great! Or is it? That all depends on if the agreement is adhered to. Office supply spend is a classic example, as it is a very common place for this mistake to occur. You’ve worked to put together a competitively priced contract list of common items. However, employees continue to order off-contract, bypassing all the work you’ve done — and end up purchasing supplies that are more expensive than the items you negotiated.
6. Failing to negotiate
For most of us, negotiating is not a natural skill — but it’s a vital skill for procurement professionals. Negotiating the “right” deal with suppliers is not always as simple as obtaining the lowest price. An article by Harvard Business Review offers up some simple, yet effective options for negotiating toward a win for all involved. One idea is to offer to bring new value to the relationship by introducing the supplier to new customers or markets. A second idea is to offer to reduce the supplier’s risk by negotiating multi-year contracts at a set price point. And a third idea is to change how you buy, by centralizing procurement and consolidating purchase orders, thereby increasing your negotiating position and your buying power.
7. Not leveraging technology
Deloitte’s Global Chief Procurement Officer Survey in 2018 found that just 33% of procurement leaders believe that their digital procurement strategy will enable them to deliver on their organizational objectives and value.
What’s the solution?
Procurement is one of the business functions that has the most to gain from technology, as it is traditionally one of the most paper-intensive and manual processes. One persuasive argument for automation lies in the potential savings organizations can achieve using a robust eProcurement solution. A system that removes most (if not all) the manual touch points should be able to give you at least 50 to 60 to maybe 70% savings on the cost to process a purchase order or invoice. Calculate your potential savings here.
eProcurement applications are a practical way to reduce or even eliminate the common mistakes we’ve highlighted here. The software provides a robust audit trail and serves as a centralized database (especially when integrated with your company’s ERP). It can incorporate budget controls and approval workflows, and guiding buying catalogs that enforce your policies. Convenient features for securing and tracking supplier contracts help ensure you’re maximizing their value. And finally — eProcurement helps advance your organization’s digital procurement strategy, driving efficiency at every step of the procurement cycle.
About the author:
Salim Khalife is the founder, president and CEO of Paramount WorkPlace, a technology company that develops, sells, and supports advanced web-based and mobile requisition, procurement, and expense software solutions for mid-market organizations. The company introduced its first cloud-based SaaS requisition application in 1997 and continues to innovate and expand its partnerships and integrations ever since. Learn more at www.paramountworkplace.com.