Procurement management is what drives your organization. How you fare as a business depends almost entirely on what you have to work with: production materials, tools, supplies, and more. Are you frustrated and constantly running out of materials to make your product or provide services? The good news is there is hope! Strategic procurement ensures that you have enough product at the right time.
To keep track of all of the different items and materials that need to be kept in stock for your company, a procurement strategy is necessary. But before you can select a procurement management strategy that fits your facility, you first need to fully understand what is wrong with your current process. To get started in the right direction, here are 4 of the most common reasons:
1. Consistently Over Spending
The biggest issue we see when a facility does not have a strategic procurement strategy in place is over spending. Prices often fluctuate and can be difficult to keep track of. The cheapest source for a particular item today may not be the cheapest tomorrow. The price differences may seem petty, but they add up, especially when you’re buying in bulk. And suddenly, without even realizing it, you’re spending way more than necessary and cutting into your profit margin.
2. Ignoring Product Requirements
For every item or material you procure, you need to know exactly what it is you need—and what you DON’T need. Some companies end up buying inferior products because they cost less, but what they buy won’t do what it’s supposed to, or fulfill the specified requirements. Conversely, companies can go too far the other way. They get far too specific in outlining what they need and end up paying extra for a lot of bells and whistles that are ultimately unnecessary.
3. Double The Work
“Procurement management” is a rather broad concept that encompasses a number of different things, from production materials to office supplies and more. Unless the company is relatively small, the same person who buys the cloth to produce shirts isn’t also going to be buying ink for the printers. So the question becomes, what category do certain items fall into, and whose job is it to procure what?
If there’s confusion on this point, some necessary items may not be ordered when they’re supposed to be, causing you to run out and have to wait for their replacement. Or, alternately, two people may order the same thing, resulting in far too much at one time.
4. Risk Mitigation
In the previous point, we discussed cloth for shirts. If the people who supply you with that cloth have production problems, then you’ll also have production problems, due to lack in your supply. Or if the suppliers of cotton for the cloth have problems with their cotton crops, then everyone suffers. Any number of problems can arise at any point on the supply chain. If you don’t plan for these problems in advance and have viable risk mitigation solutions in place, then your entire company can end up suffering due to the problems of a supplier.
As many strategies as there are for procurement management, there are at least that many reasons for those strategies to fail. Different strategies work better for different companies, and if you’re using the wrong strategy or using the right strategy the wrong way, it can lead to serious procurement problems. The secret is being able to recognize those problems as soon as they happen. Only then can you fix them and create the strategic procurement strategy that works best for you.
About Michael Wilson
Michael Wilson is AFFLINK'S Vice President of Marketing and Communications. He has been with the organization since 2005 and provides strategic leadership for the entire supply chain team. In his free time, Michael enjoys working with the Wounded Warrior Project, fishing, and improving his cooking skills.