4 Risks that Should Be Avoided to Enhance the Efficiency of the Procurement Process
The procurement process is crucial for any organization as it deals with purchasing essential goods and services and ensuring sufficient resources are available for the employees to manage their tasks effectively. It should be handled very carefully as it comes with certain risks that can impact business operations, supplier relationships, and productivity and even hamper the company’s brand value.
Procurement professionals should ensure all stakeholders thoroughly evaluate requisition requests before approving them, and this ensures compliance with purchasing operations. Having a clear procurement workflow is essential as it helps finance teams get complete control and visibility of the budgets and spending. Even though you take utmost care, there may be some worst cases where the procurement process is interrupted by various risks.
This article discusses a few risks associated with the purchasing process and also suggests tips to overcome those and achieve higher productivity.
Most Common Risks Associated with the Procurement Process
Poor Vendor Management
Building and maintaining good relationships with suppliers is imperative for businesses of all sizes. Strong supplier relationships allow enterprises to negotiate competitive prices and payment terms and help to get products and services at the best prices possible. On the other hand, poor vendor management leads to dissatisfied vendors, resulting in delayed consignment delivery, low-quality products and services, higher prices, and more.
Contract Mismanagement
Contracts are the most crucial elements of the business as they hold the most confidential information related to vendor partnerships. Businesses should manage and keep track of contract terms and timelines to make sure that contract terms are followed in every aspect of the process. Most importantly, enterprises should ensure that the contracts are active, and if not, they should renew or cancel contracts before the due dates to avoid legal issues. Always remember that contract ineffective contract management will affect the company’s brand value and relationships with vendors.
Improper Communication
Often the procurement teams need to communicate with other departments of the organization for various purposes. For instance, the procurement department needs to communicate with the accounts payable department to validate invoices and make payments. Effective communication is imperative in any organization as it helps employees to work together in a collaborative environment. Any miscommunication around the number of items being procured, price, payment terms, and delivery timelines can impact the company negatively. So, it is the responsibility of the organization to provide employees with the most effective solutions that allow them to communicate effectively and work collaboratively.
Fraudulent Activities
Fraudulent activities are unavoidable in any organization. As the procurement team involves in many transactions every day, tracking, identifying, and avoiding fraudulent activities is very difficult. Fraudulent activities can be anything, from fake invoices and purchase orders to falsifying pricing information, invoice fraud, money laundering, and more. Fraudulent activities can increase the company’s expenses and affect the overall productivity of the organization.
The Bottom Line
Earlier procurement was considered a back-office function with a very low to moderate level of importance. Today, enterprises are realizing the scope of the procurement process in reducing operational expenses and enhancing the efficiency of the organization. Most businesses have been focusing on improving the procurement process, as a minor issue in the process can affect the reputation of the company. On the other hand, finance teams are required to allocate a specific budget for the procurement process, and they should ensure that the spending does not exceed the budget. However, you can cope with this by creating a proper workflow and automating purchasing operations with robust technology solutions.
From creating and approving requisitions and purchase orders to receiving invoices and making payments, procurement solutions help streamline almost every purchasing process. The software simplifies the requisition creation and submission process for employees and allows the approvers to approve requisition requests with just a few clicks. A few advanced solutions also include a budgets module that enables finance teams to create budgets and track spending while reviewing and approving purchasing requests.
