Sourcing and Procurement
The Risks and Challenges of Sourcing and Procurement Services and How to Mitigate Them
Inefficient procurement processes lead to supply chain disruptions that can damage the health of a business and severely affect the bottom line. The responsibilities of a procurement team include needs identification, sourcing the necessary resources, locating appropriate vendors, negotiating contract terms, managing supplier relationships, and more. Procurement professionals may face several challenges as they carry out their various duties, and it is necessary to have certain procurement risk management measures in place to efficiently overcome these challenges. This blog will go over the most common risks and challenges faced by procurement teams and explore measures that can be taken to mitigate these procurement risks.
Imprecise needs analysis
Needs analysis is the very first stage of the procurement process. It involves establishing the resources and raw materials needed to keep business operations running smoothly and verifying when and at what cost these materials are needed. Errors and inconsistencies at this stage are common risks in the procurement process and can lead to supply chain disruptions moving forward, which in turn can negatively affect the bottom line.
Needs analysis oversights can lead to over or under-purchasing merchandise and trigger undesirable situations. Excessive buying results in an inventory surplus, which in turn can push up storage costs, possible inventory damage, as well as obsolescence. On the other hand, not buying enough certain goods to fulfil demand can lead to a business losing customers.
Sourcing and vendor-management issues
Oversights during the sourcing and vendor selection stages of the procurement process can lead to issues moving forward. Procurement teams must conduct detailed evaluations of prospective suppliers to ensure that they can consistently provide high-quality merchandise at reasonable prices. Failure to assess vendors and their capabilities before getting into an agreement exposes a business’s supply chain to unnecessary and avoidable risks, which could be costly in the long run.
Conducting certain necessary checks to verify a prospective vendor’s suitability for the tasks at hand is a major aspect of procurement risk management. These checks include reviewing a vendor’s financial stability by conducting due diligence as required and ensuring they adhere to relevant ESG standards. Procurement teams should also verify that the vendor can deliver products that match the exact specifications provided to them and, if necessary, visit the facility where these products are being manufactured. It may also be necessary to obtain and review a vendor’s references and establish KPIs before agreeing to terms and signing contracts.
Acquisitions made by an organisation outside established procurement processes are referred to as dark purchases. This practice of buying goods or services without the approval of the procurement department is a serious problem for businesses of all sizes as it makes it impossible to accurately track company expenses. The resultant revenue loss and lack of control over the supply chain can cause serious damage to an organisation’s bottom line. Procurement teams must incorporate contemporary spend management processes and strategies to ensure that all company spend is visible to eliminate dark purchasing.
A reliance on outdated technology
While it is possible to efficiently manage a smaller business’s procurement function manually, doing so becomes extremely difficult as the organisation grows and procurement processes become more complex. Using old and outdated techniques to manage procurement can open to door to various risks in the procurement process, including difficulty accessing up-to-date data, making purchases based on inaccurate data, security risks, and a lack of transparency. Organisations can avoid such issues and boost process efficiency by incorporating modern technologies such as automation and digital procurement solutions.
Dubious contract management
The inability to create sound and well-defined vendor contracts that comply with established laws and regulations is an often-overlooked risk in the procurement process. An organisation may unwittingly create vendor contracts that don’t cover all necessary KPIs, lack detailed review processes, or even break certain laws, thus exposing the business to various risks. Such issues can be avoided by having thorough contract lifecycle management processes in place, supported by skilled procurement professionals with the expertise required to create clear and unambiguous vendor contracts that comply with established norms.
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How can Infosys BPM help?
As an organisation grows, so do the demands on its procurement team. In response, businesses may need to hire and train more procurement staff, which can be extremely expensive and time-consuming. This is why we’re seeing more and more companies adopting procurement business process outsourcing solutions that give them access to highly-qualified procurement experts while allowing their in-house staff to concentrate on core business processes. The Infosys BPM, procurement outsourcing providers, offer businesses cutting-edge technologies like AI and automation to boost the efficiency of existing procurement processes and manage risks in the procurement process. Reach out to learn more about risk management in procurement.