64% of companies admit that supply chain disruption has been the biggest challenge over the last year.
Without effective best practices in place, your procurement processes could fall victim to this kind of disruption.
Not only does this cause inefficiencies and delays in your procurement workflow, but it also reduces customer satisfaction and jeopardizes relationships with key suppliers.
To prevent this, it’s your responsibility to streamline your procurement process for end-to-end efficiency.
Read on to learn the procurement best practices that help you to eliminate bottlenecks in your processes and keep your purchasing workflows ticking over smoothly.
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- Common Supply Chain Bottlenecks
- Procurement Best Practices – 8 Ways to Streamline Purchasing
Common Supply Chain Bottlenecks
While procurement processes vary from organization to organization, they tend to follow similar patterns:
- Identify internal needs
- Research suppliers
- Pick a supplier
- Initiate procurement negotiation
- Create a purchase order
- Approve purchase order
- Send purchase order to the supplier
- Receive goods
- Receive supplier invoice
- Pay invoice
- Maintain records
All of this requires constant and streamlined cooperation between various stakeholders to keep the process smooth and seamless.
However, with so many steps, there are plenty of opportunities for bottlenecks to arise during the procurement cycle. These bottlenecks can cause delays and disruptions that affect operational efficiency and eat into cost savings.
Looking at the data, there are common bottlenecks that tend to occur.
For starters, many organizations experience challenges with managing time and resources due to unforeseen disruptions in the supply chain.
50% of Chief Procurement Officers (CPOs) admit that unknown risks in the supply chain are their biggest challenge.
In fact, 72% of companies have experienced external disruptions to their manufacturing supply chain. This has meant that nearly half of all organizations have experienced missed, late, or short shipments, and one in five companies have experienced low-quality shipments.
These struggles have bottlenecked the process of getting goods to the end-user.
A lack of transparent supplier communications and poor supplier relationship management have also added to the issue with supply chain risks, as suppliers are failing to notify companies of potential delays.
As 64% of procurement professionals agree, an inability to gauge your supplier’s performance poses a major risk.
In response to this, 42% of organizations are increasing transparency with suppliers to mitigate supply chain risks that may cause bottlenecks. Plus, 56% of companies say they’re increasing communication with suppliers to spot potential issues early.
A lack of appropriate procurement tools is also a problem.
Not only does lengthy manual processing bottleneck procurement management, but a lack of tools can also add to the problems with transparency in your procurement system. The same tools can also help mitigate supply chain risks.
In fact, 52% of CPOs agree that the underutilization of automation technologies is a big risk.
That’s why 25% of organizations are using digital solutions or monitoring tools to gain more supply chain visibility and better identify areas of risk.
Lastly, reliance on one supplier can be highly problematic. If your vendor collapses, you’ll see significant delays as you’ll have no supplier to provide you with goods.
As every procurement specialist knows, good strategic sourcing practices require you to find multiple suppliers for each input. This is why 39% of organizations are multi-sourcing products to reduce reliance on any one supplier.
Many of these bottlenecks might seem unavoidable at first. Luckily, that’s not the case. You can eliminate many of those challenges by implementing simple best practices into your procurement strategy.
Procurement Best Practices – 8 Ways To Streamline Purchasing
How well procurement functions in your organization depends on how you weed out inefficiencies and combat potential bottlenecks in your procurement system.
Here are the most impactful ways to reinvigorate your procurement cycle to guarantee sustainable procurement practices that run smoothly.
1. Automate Procurement Processes
Procurement is one of your core business activities, as it affects almost every aspect of your company’s operations and profit margins. Yet, so often, purchasing teams have to work with outdated processes and tools.
How much easier would it be to manage resources if the team didn’t have to complete tedious activities by hand?
A third of organizations believe that automating processes is the best way to prevent disruptions and bottlenecks in the procurement process, while 23% of organizations are already evaluating or implementing automation solutions.
Procurement automation software removes the need for manual processing. Instead, repetitive tasks such as data entry, record updates, approvals, and document hand-offs are automated to speed up processing, boost cost savings, and reduce errors.
Why Implement Procurement Automation?
There are three main reasons to automate procurement:
- To save time: Think of all those hours your team spends on processing purchase orders, data entry, approval follow-ups, invoice follow-ups, and more. Not only do 42% of business leaders agree that automation can speed up repetitive task completion, but 54% of employees agree that automating menial tasks could save them up to 240 hours per year.
- To reduce human error: Automation will also reduce the potential for mistakes, even simple ones like miscalculated dollar amounts or mis-entered order numbers. In fact, half of all business leaders and employees agree that automation cuts back on manual errors.
- To decrease processing costs: CPOs say that cost-effectiveness is a top benefit of the digital procurement processes and 31% of business leaders say business process automation reduces labor costs.
How Hard Is it to Implement Automation?
You can customize those templates to match your processes with a simple drag-and-drop designer or create specific processes from scratch, such as approval workflows, forms, and so much more.
In fact, the only thing you need to get started is a well-defined workflow that you want to automate.
You simply build out your dynamic procurement workflow, create digital forms to support the workflow, and add business rules that determine the automation functions.
This creates a streamlined, automated procurement process where forms automatically route through each step to the correct approver at the right time.
By connecting your SQL database to your procurement workflow, you can save time on data entry as digital forms automatically populate and validate. Not only that, but all data will automatically upload to your database to keep records up-to-date.
This is how the technology firm Pivotal streamlined its procurement practice.
Previously, Pivotal had used email for procurement organization, filling out purchase cards and purchase orders manually and sending them via email.
By implementing frevvo, this whole process has become so much faster.
Purchase cards automatically pull cost centers from Google Sheets and conditionally route them to the correct approver.
Now there are no more errors; plus, delays in the process are a thing of the past.
2. Have Well-Defined Processes
Processes should be efficient and create operational efficiency.
The problem is that inefficiency commonly occurs because the company lacks clearly defined processes.
Without well-defined processes, teams can’t be sure which tasks are essential at any given time or what actions to prioritize to complete the work.
Plus, employees may struggle to streamline communications and manage project delivery between various stakeholders.
Most damagingly, poorly defined processes lead to chaotic operations.
While things still get done with inefficient processes, you’re likely to incur notably higher costs in terms of money, efficiency, productivity, morale, etc.
Without clear procurement processes, duplicated requests amass unnecessary costs, while poor record-keeping results in lost time, delays, and other delivery disruptions.
To clearly define your procurement processes:
- Document every step of the purchasing process
- Identify who is responsible for each task
- Outline how those actions should be performed step-by-step
3. Practice Process Transparency
27% of organizations say that increasing transparency in the supply chain is the most effective way to prevent disruptions and bottlenecks in procurement.
Transparency in procurement means giving all process stakeholders access to the relevant documentation and information to help them complete their respective parts seamlessly.
Currently, only 50% of procurement leaders have high or very high visibility into their tier one suppliers. However, the benefits of transparency are clear: organizations with higher visibility were thriving better than those with less.
The benefits of transparency include:
- Faster processing – When everyone knows what they need to do and what standards or processes they must abide by, fewer bottlenecks happen.
- Cost reductions – Transparent procurement reduces costs by eliminating wasted time on long back-and-forth email chains and confusing requests. Instead, stakeholders can see exactly what they need to do at what time.
- Accountability – Transparency in documentation holds both you and your vendors accountable for each stage of the procurement journey.
- Responsible sourcing practices – Fully transparent processes help companies source products and services more responsibly, abiding by their corporate social responsibility.
To improve transparency, 47% of procurement professionals are considering new tools or applications.
Procurement automation software like frevvo can help achieve better transparency thanks to automated record-keeping.
4. Have a Centralized Contract and Documentation Hub
22% of companies are worried about contract complications within the supply chain because inconsistencies across contracts, challenges with contract management, and contract errors cause delays.
Most contract issues are a result of one simple problem: not having a centralized destination where employees can find, access, and retrieve contracts and other necessary documentation.
Having all documentation — from operational processes to contract templates — in a single, easily accessible location ensures:
- Consistency of contracts and communications
- Fewer errors
- Less time wasted dealing with remedial work
Consider building a centralized hub for your contract templates, as well as recent versions of your most commonly-used contracts.
You can use simple solutions like a template repository within Google Docs or a dedicated contract management software.
5. Use Data to Optimize Inventory
Optimizing inventory is vital since inventory carrying costs can be enormous. Logistics experts place it at 18% to 75% per year, depending on the business type.
Given the constant push to cut costs and streamline spending, ensuring optimal stock levels is a prime focus. Too much stock, and you’re paying excess logistics fees. Not enough stock, and you won’t meet customer demands/.
That’s where turning to data-driven insights comes in.
Leverage advanced insights and the power of AI to determine optimal inventory levels at any given time and predict the company’s needs for stock into the future.
Right now, 39% of procurement professionals are looking to operational analytics to better track business metrics and indicators, while nearly 50% of organizations are looking at tools or applications that improve supply chain tracking.
Plus, one in 10 organizations is using AI to streamline logistics, while a further one in 10 is using it to optimize inventory management.
While the process involves implementing additional technological solutions, data gathered in the process will help you accurately predict demand, avoiding either overstocking or undersupplying an item.
6. Have a Multi-Sourcing Strategy
It’s not smart to rely on one supplier for any element of your supply chain. If you’re only buying goods from one vendor, you risk delays and bottlenecks if that supplier fails to produce these goods on time.
You’ll also run into delays if you have problems with supplier management and the relationship breaks down. If you’ve only got one supplier in the pipeline, you won’t be able to produce your end results until you’ve located a replacement vendor.
This is why 39% of organizations are multi-sourcing products. It reduces their reliance on one supplier, creating resilience in their procurement systems.
Not only that, but you should also consider selecting suppliers from different geographical regions. Uncontrollable variables such as war, pandemic, geopolitical problems, and climate issues can wipe out suppliers in a whole region.
To handle this potential pitfall, 30% of organizations are planning to diversify their supply chains among multiple geographies. That way, they won’t be blindsided by a regional event that knocks manufacturing out of action.
7. Build Strong Supplier Relationships
47% of organizations believe that strengthening supplier relationships is the best way to reduce supply chain disruptions and bottlenecks.
This is because top-notch supplier management increases transparency between you and the vendor so that both parties are aware of what’s happening on each end.
The supplier will let you know of issues and changes ahead of time, and you’ll keep them informed on process alterations or payment problems.
This means you can deal with potential bottlenecks early before they become crisis points. That’s why over half of organizations are boosting their supplier communication strategy. It enables them to identify potential disruptions early.
Not only that, but strong communication helps you to mediate any issues that may arise before the relationship turns sour.
You may also find that a good working relationship with your supplier puts you at the front of the queue. If your supplier is struggling to accommodate all their buyers, they’re more likely to help buyers that they work well with. Make sure that’s you by building firm relationships.
8. Train Your Procurement Team
According to a recent report by Deloitte, “The overall effectiveness of teams and their ability to sustainably deliver on the organization’s biggest priorities, such as cost and risk management, requires CPOs to build and deploy effective talent strategies.”
In this sense, it’s up to your organization’s procurement leader to ensure that your procurement team is up to snuff on all policies and processes.
A well-trained team is far better equipped to carry out processes effectively and efficiently. Plus, they’ll be in a better position to identify and deal with obstacles that arise before they get out of hand.
That’s why CPOs say that enabling teams is their number one priority in challenging times.
Make sure you provide formal procurement training and clearly communicate any changes to processes as they occur. Centralize procedural documentation so that staff knows where to find training resources.
If you have a well-trained team, you’ll find it easy to hold your procurement staff accountable for any mistakes along the line.
To keep your procurement strategy running smoothly, you need well-defined processes that secure relationships between all the stakeholders involved.
Increasing transparency and optimizing operations are vital to this. That’s why it’s smart to digitize and automate your procurement workflows.
That’s where frevvo comes in.
For faster, more effective procurement processes with higher levels of transparency, fewer errors, and speedier outcomes, sign up for frevvo’s free trial today.