Five common challenges faced by the procurement industry
As with any industry, things don’t always go according to plan in procurement and businesses can face several challenges along the way. Couple this to all of the tasks that industry leaders have to accomplish, such as processing payments and managing vendors, and it’s not an easy role. So here are five procurement challenges and how businesses can overcome them.
Risk mitigation is defined as the process of lessening the impacts of potential threats. It involves a company monitoring and assessing their most severe risks to ensure that they are fully protected from a potential attack.
For businesses in the procurement industry, this is a massive challenge due to the volume of risks that plague them. For example, supply risk is one issue and others include delivery risks, cost quality, market risks and the potential for fraudulent activity.
To overcome this challenge, an organisation can adopt one of several strategies. The first is risk avoidance which involves the organisation assessing the risk and then not performing the activity that causes it. If they can foresee that doing something will cause a risk, then they can avoid that risk by choosing not to do something.
Dark Purchasing is when a business buys a product outside of a known procurement process or with no prior knowledge about the vendor. Due to their uncertain nature, they can often lead to unnecessary purchases and have the potential to be a security risk for a business.
For procurement businesses, this can be costly in the long term and result in a loss of revenue from purchases that cannot be verified or justified using the company’s capital or material inventory.
One way to prevent this from happening is to bring internal stakeholders onboard. That way they can be assigned procurement-related responsibilities and allows them to play an even bigger part in the overall industry process.
One of the biggest problems caused by inaccurate data is that it can lead to either inventory shortages or excess inventory following a company purchase.
A way to solve or at least reduce the likelihood of inaccurate data is to identify its source. This allows any discrepancies to be detected early and then prevented.
Strategic procurement is a process which businesses follow to ensure their supply of goods is delivered on time and meets their goals. To be effective, it requires organisation-wide cooperation from each department. The problem with strategic procurement is that it is difficult to fully understand the consequences of each action or move made in a procurement plan, and then execute them across all areas of their organisation.
To overcome this, businesses can think carefully before making any decisions or purchases. They can also develop their negotiation skills and build their supplier relationships. Doing these will help their procurement plan and may make it easy to understand.
Sometimes the problem is not within the business but with the supplier. One of the challenges procurement leaders face is effective management of their suppliers. This is due to a complicated process which involves finding the correct supplier and then being able to keep track of the vendor’s output, while also ensuring the supply of goods is both consistent and high quality.
To overcome this, there are several solutions. A business could make more regular site visits to their supplier, helping them monitor their progress. Or they could paper or web-based supplier questionnaires as a way of monitoring their activity.
In addition they could ask for external certifications to ensure the validity of a supplier or they could research third party reviews, which would help them gain suppliers’ trust and monitor them more effectively.
Coupa Launches US$50 Million Ventures Fund
Operational resilience and agility. Following the events of the last twelve months, companies have focused on these strategic areas like never before. Some, as we’ve noted, have started to wonder whether this trend will continue post-pandemic—or will we go back to the same old supply chain? Not if Coupa Software has its way.
Last week, the company launched Coupa Ventures, a global fund that will invest US$50mn in early- and growth-stage companies that target business spend inefficiencies. “Coupa Ventures enables us to invest in a future where businesses and their suppliers can harness the power of their spend to constantly adapt, transform, and innovate”, said Rob Bernshteyn, Coupa’s Chairman and CEO.
What’s Business Spend Management (BSM)?
Let’s be honest, it doesn’t sound particularly sexy—it sounds like a subsection of the finance department. But business spend management, together with ERP (enterprise resource planning), CRM (customer relationship management) and HCM (human capital management) make up the core operating process of any company out there. When companies spend money, sign contracts, analyse supplier costs, take inventory or budget for the future, that’s BSM. Overall, business spend management is made up of three main areas: procuring materials, managing invoice, and handling expenses. Essentially, it’s the engine of the entire operation.
Why Change It Up?
According to Coupa, the next wave of BSM is now. It wasn’t always this way: in March of 2016, advisory giant Gartner claimed that BSM was dead. At that time, the firm was partly right. Companies couldn’t handle trillions of bits of data by themselves—and they were sinking as the waves of big data swept over their heads.
But recent developments have meant that BSM isn’t fated to die just yet. “The key to optimisation is data—and not just any data”, Coupa stated. The company has supported community intelligence, in which machine learning uses anonymised data from hundreds or thousands of client companies to suggest better spend tactics. This way, companies can get better insight into their suppliers, track supply chain disruptions, and investigate procurement alternatives.
This network effect is part of what makes Coupa Ventures so exciting. Said Eric Christopher, co-founder and CEO of Zylo, “We’re excited to join an expansive ecosystem of customers, suppliers, and partners”.
First Companies in the Ventures Portfolio
- Zylo, a leading SaaS management platform that helps companies manage cloud-based applications, offers visibility into what software is being used, how much is present, and how a company can optimise its software investments.
- SourceDay, a leading supply chain performance solution, bridges the gap between a company’s enterprise resource planning (ERP) and its supply chain network.
At SourceDay, Coupa’s investment is heralded as a chance for the company to really take off. “The investment from Coupa Ventures will...enable our joint customers to save money and leverage supplier performance as a competitive edge”, said Tom Kieley, SourceDay CEO. “We’re honoured to expand our relationship with the Coupa ecosystem”.
Looking ahead, Coupa will capitalise on community intelligence to help its partners make smarter spending decisions. “[Organisations will] place bets on which investments will quickly pay off to accelerate their growth and resilience in the post-pandemic economy”, said J.J. Freitag, senior vice president of Corporate Development at Coupa. “[And] we’re looking to back the best ideas across Europe and beyond to help businesses build back even stronger”.