Modern companies are operating in increasingly intense scrutiny driven by technology, customer reviews, and expectations for service improvements. Their main objectives are to minimize cost by improving the procurement cycle, manage risks, maintain vendor relationships, and streamline processes.
However, reducing costs still remains the top priority for businesses. Procurement professionals need to think before making any purchase. It might sound an easy task, but only experts will understand the difficulty involved in selecting and creating purchase orders for every request that comes to their desk. This is where unnecessary expenses start. Therefore, it is important for companies to profile the challenges faced during the management of the procurement cycle that can lead to the failure of the project.
Key procurement cycle challenges
#1 Inaccurate planning
Mostly, the decisions made while planning for purchase and delivery are crucial as they affect the overall schedule and total cost of the operations. Improper planning in the procurement process may result in material shortages or surpluses, cash flow problem, and unnecessary delays. Therefore, companies should follow procurement best practices and prototype planning models to facilitate pre-tender and procurement processes and improve their procurement cycle.
Want to avoid unnecessary material shortages and cash flow problems? Get in touch with our experts and know how they can ensure best in class procurement cycle for your organization.
#2 Reducing costs
The process begins with the proposal of the annual budget. However, the reduction of costs majorly depends upon effective supply chain management. Even small reductions in material costs in a company’s total operating budget can impact the organization positively by increasing its profit margins. Therefore, professionals managing the procurement cycle must adopt procurement best practices and negotiate effectively to obtain materials of the highest quality at the lowest cost.
#3 Legal and political environment
Legal environment refers to a broad legal framework that governs all business activities including research and development apart from procurement rules and regulations. It involves various aspects such as manufacturing, finance, marketing, and contracts of the procurement management system. Similarly, the political environment includes trade associations, professional associations, and business firms or companies that are engaged in the procurement process. Their varied interests affect the overall budget of the procurement management system and disturb the complete procurement cycle. Such an environment requires companies to include detailed provisions in their contracts and develop a strong coalition among policy makers, bureaucrats, and interest groups to get their procurement process in place.
#4 Maintaining vendor relationships
Vendor relationship management is an intellectual approach to manage relationships with vendors who supply goods and services to the organization. The methodologies of vendors pre-qualification in the procurement cycle vary from company to company but the relationships strengthen when procurement professionals follow mutually agreed upon standards to assess the performance.
How to manage your procurement cycle?
Our team of procurement experts at SpendEdge realizes that ensuring efficiency in the procurement process has a positive chain reaction within the entire organization. Therefore, we are highlighting four steps that are critical to step-up your procurement cycle:
- Incorporate a contract management system
- Maintain a good supplier relationship
- Automate processes
- Employee training and development