In our complex global environment, businesses face many procurement challenges. For example, natural incidents like the 2021 Suez Canal blockage on one of the busiest trade routes in the world caused supplier issues. The container ship was holding up nearly $10 million worth of goods. These are some of the issues that procurement teams could never predict. Read on to find out more about the top procurement challenges.
Platforms like Trustpair secures the entire P2P process thanks to automated and ongoing account validation from the onboarding phase and direct integrations with the main procurement portals.
Non-compliance
Failing to follow internal and external standards and rules is one of many procurement challenges that organizations face.
External compliance
When onboarding a new supplier, a challenge can arise if a vendor isn’t externally compliant with rules and regulations set by governing bodies.
For example, a new supplier may have been put on an international blacklist and without checking and completing efficient due diligence, your company may not know. Without knowing, you could sign a contract with a supplier for their services that has links to a country on the FATF blacklist.
Organizations need to manage supplier risks like this to ensure they aren’t penalized financially and reputationally. It could also disrupt operations too as you may have to onboard another preferred supplier in the future.
Internal compliance
Not respecting internal rules and controls also pose risks. For example, if an employee doesn’t perform a purchase requisition form before sending an external purchase order to a supplier, the entire process wouldn’t be compliant and risk slowing down operations later on.
Lack of communication
Poor communication can complicate the procurement process.
Let’s say two members of the procurement team are tasked with sourcing a new preferred supplier to replace a vendor that is winding down its business. It is important for the colleagues to discuss which suppliers they will contact so they don’t overlap. This way, they don’t make the company look unprofessional and disorganized.
In huge companies there can be thousands of suppliers. Without the right tools, can be hard to centralize all communication and information.
Communication from procurement leaders is also important when new internal policies are created within the process.
Stock shortages
While procurement challenges like this may not be your organization’s fault, there are measures you can take to limit the impact of these issues.
For example, your preferred supplier may contact you to say that they don’t have any more stock of certain products left which would impact your business’s offering. It can be challenging to predict a volatile supply chain at times.
However, there are certain things that you can control. To mitigate this risk, have measures in place such as:
- Approved backup suppliers that can help source or deliver your product if you need to call on them
- Automated inventory systems which re-order when stock falls below your pre-agreed threshold
By maintaining product quality and preventing delivery delays, you’ll also improve user experience. Also, being transparent with customers around stock and delivery can help mitigate frustrations from their side. By engaging with customers and providing reasonable solutions if they are impacted by the stock shortages, you can try to retain customer satisfaction and relationships.
In turn, you can uphold your company’s reputation. It is important to not only choose your suppliers carefully to ensure transparency from their side but also to manage your suppliers well. Careful management of vendors should improve supply chain transparency and help reduce ongoing risk.
Labor shortages
Labor shortages have been linked to political volatility, wards, and the COVID-19 pandemic in recent times.
Many are finding that there are simply not enough workers to meet demands. In part, this is due to a rise in the number of ‘economically inactive’ people that aren’t working or looking for work. Other reasons include an aging workforce and early retirement.
It means that vendors and third-parties may struggle to fill employment roles, fail to deliver the production numbers and meet demands of the purchasing team and customers.
Rising costs
Unexpected costs can quickly add up.
For example, geopolitical issues can force prices to rise like oil. Energy sanctions that the United States placed on Russia and the war with Ukraine itself has meant that crude oil prices have increased.
If we look at added costs that a business can control, for example, if suppliers’ invoices are paid late, that can rack up company spend or financial penalties. Additionally, suppliers may raise their prices to reflect the rising costs they face in the supply chain. This can add to the cost for their b2b customers, which can become especially challenging when these costs are not anticipated.
If invoices being paid late occurs too often, re-assess the workload of the employees in charge of invoices and work out if they can prioritize tasks better and it may be the case that you need to lessen their workload slightly to do so.
Automatic invoice notifications can also help here to ensure suppliers are paid on time.
Incorrect data
We are all human and everyone makes mistakes, even when you’re trying your absolute best not to. So naturally, that applies to procurement processes too and human error that causes inaccurate data. For example, when inputting a supplier’s account details, an employee may input inaccurate data by getting a number wrong and therefore they aren’t able to be paid on time.
To overcome these manual challenges and risks, explore automation with Trustpair’s software and request a demo today!
Cybersecurity
During the procurement cycle, worries surrounding cybersecurity and fraud are natural. After all, our latest research shows that 96% of companies were the target of at least one fraud attempt. Also, more than one in three (36%) victims of successful fraud lost more than $1 million.
Here are some of the ways that fraud may be attempted:
- Vendor fraud – employees could create fake suppliers and invoice these suppliers, whose bank details are controlled by the fraudulent worker.
- Spoofing – a fraudster may impersonate your supplier and request to change their bank details to an account owned by the criminal
- Procurement fraud – supplier providing materials or products below the standard of what was agreed
A nonprofit Save The Children did experience fraud in procurement. In 2017, the organization lost around $1 million after a fraudster pretended to be an employee and sent false invoices from a fake company for a legitimate project they had completed in Asia. To complete the fraudulent activity, the cybercriminals hacked into an employee’s email account to gain insight. Fortunately, insurance meant that the children’s rights charity recovered around 90% of the money lost. Organizations should explore best practices like automation for more security and protection.
Platforms like Trustpair secure the entire P2P process. This is because of the automated and ongoing account validation from the onboarding phase and direct integrations with the main procurement portals. This consistent account validation offers traceability and history for each account, as well as a vendor banking and company data risk assessment. These processes provide protection against errors and fraud risks.
The platform also offers real-time data changes of vendors. Therefore, you can rest assured knowing that you are sending funds to the account that you think you are.
Learn about all the procurement trends and how AI can increase your performance in our latest white paper crafted with Deloitte!
Recap
The seven top procurement challenges that teams may face include non-compliance, poor communication, stock and labor shortages, incorrect data, human error, and the risk of fraud. Trustpair’s software can secure the whole P2P process due to account validation and integrations directly with the main procurement portals.
