Procurement is often overlooked, one of any business’s most crucial functions. Procurement’s role is to source products, services, and other items and to ensure that the procured items are of high quality, best price, and available at the right time to the organization.
Businesses are now focusing on how they can improve their procurement processes to reap more benefits. Unfortunately, companies sometimes fall prey to misconceptions and myths embedded in their strategy, which limits your procurement efforts.
Less Known Myths in Procurement
Here are the Top 5 less known myths in procurement that can negatively affect your procurement process:
1. The Cheaper the Supplier, the Better
Most organizations seek the cheapest vendor when procuring material for any project, department, or organization. In fact, cost reduction remains the second most common KPI used for supply chain monitoring. Not only do organizations like doing business with cost-effective vendors, but they also prefer them over even the slightest costly vendor.
The problem arises when the supplier lowers the quality of the product to stay cost-competitive and please the customer. This leads to decreased product life of the material used by the organization itself or sold by it. In both cases, it costs organizations heavily as they must procure new products or mend ruined market reputation, which is worse.
Although price is a significant consideration when selecting a vendor, it is only one aspect of the process that procurement experts use to locate the best suppliers for the task. The procurement team needs to understand that a critical element of procurement’s job is screening suppliers, negotiating the best price, and maintaining a healthy relationship with them.
2. Procurement Processes Are Difficult to Follow and Take Time
Sometimes processes are considered mundane, and everyone feels like skipping them to get to the result as soon as possible. Every employee wants to have the required material at their disposal, get stuff done and move on to the next task.
But procurement of any product or service needs a process to be followed. Processes are important to implement and adhere to as they can help identify maverick spending and justify organizational spend in case of conflict.
Doubtless, manually writing details on the purchase requisition form, sending it for necessary approvals, converting it to a purchase order, and at last placing an order requires both time and effort. But considering the importance of a predetermined process and policies, each and every step must be adopted.
To resolve this issue, procurement teams can introduce procurement software that helps get quick approvals, auto-flip purchase requisition to purchase order, and does a three-way matching to ensure the right products are delivered.
Procurement technology streamlines the entire procurement process while providing visibility of every single step along the way. It also helps employees to track their procurement request that informs them regarding the status of their required delivery.
Apart from that, instead of going through multiple contracts and manually cataloged items from preferred vendors, they can simply view and add to the cart digitally cataloged items. Such features make every process mandatory and easy to follow.
3. Supplier Relationship Is All About Cost Savings
Every procurement department knows that a healthy relationship with the supplier is crucial to a business. But, most organizations expect that their relationship with the supplier will lead to cost savings in the form of discounts and rebates. That’s a false perception.
The aim of building relationships with suppliers holds more strategic importance than just cost savings. When a company focuses on supplier relationships, suppliers ensure to get you the best quality products. Likewise, occasionally if an organization needs urgent delivery, these suppliers go out of their way to deliver you required items timely.
It is also important to remember that vendors like to serve those organizations that are their regular customers and thus focus on fulfilling their needs. When organizations fail to develop a relationship with their vendors in search of the cheapest suppliers, they suffer indefinitely.
The new vendor might not comprehend your organization’s requirements as it takes time to understand the need of a business entirely.
4. Negotiation Is All About Price and Savings
Negotiating the best possible deal with your suppliers should not always be about price and cost savings. Other parameters such as supplier performance criteria, delivery schedules, payment conditions, and product quality may be negotiated.
According to most business owners, a good bargain fits all of their needs. However, there are other additional considerations, such as whether or not you want to do business with a specific provider again.
Both parties should leave a negotiation feeling satisfied with the outcome. Negotiations might fail if one party feels backed into a corner.
5. Technology Will Solve All the Problems
Although technology plays a significant role in streamlining the procurement function and reduces the time it takes to complete a single procurement cycle, it is untrue that technology can solve all procurement-related problems.
For example, suppose you do not have a previously set line of approvals, dedicated teams, and policies to guide procurement workflow. In that case, technology might not be able to help you out. You can deploy any software, but the teams and departments will not know how to utilize it effectively.
Therefore, getting the process, people, and culture right is essential so technology can give results.
If you keep following these myths and misconceptions, it can negatively impact your organization’s bottom line instead of driving results. Develop and introduce clear rules and procedures and communicate with them to your teams to help them understand their importance.
Encourage two-way communication and employee feedback to address any misconceptions and nurture valuable insights. Remember to investigate every idea and process before embedding it in your policy or communicating it to departments.
Prasanna Rajendran is the Vice President at Kissflow, where he heads the business operations of Kissflow Procurement Cloud, a flexible procurement software for procurement teams to streamline all their purchasing processes in a single place. He has over 20 years of experience in technology and has helped Fortune 500 companies with custom solutions in the sourcing and procurement space.