Purchasing Department in a Business: Ten Common Challenges Faced by Every Purchasing Manager
The target for savings in 2022 for procurement teams is around 19% lower compared to the year before, according to a report by Ardent Partners. Despite the fact that cost-saving has been the top priority for a long time, new challenges are being recognised in procurement as new requirements surface. The advancements in technology are also changing the purchasing manager's responsibilities rapidly.
It is the right time to re-evaluate the significance of purchasing in the overall organisation strategy.
So, here are some of the common challenges faced by purchasing managers, and how can they be addressed?
1. Risk management and mitigation
Presently, Risk management and mitigation is a significant purchasing challenge. Earlier, spend management was usually prioritised by purchasing managers. Even though it is an integral part of the job, working precisely with low-cost suppliers is not the most suitable way to manage to spend for them. However, companies that adjust to supply chain volatility can counter the issue.
Given the present-day state of supply chains, there needs to be a transparent market and supplier intelligence by the purchasing managers. They must be well aware of the risks associated with working with particular products, suppliers, and industries. Otherwise, they will likely face purchasing issues that will damage the company’s reputation.
One way the risk can be managed and mitigated by organisations is by diversifying their suppliers, which can help purchase managers avoid purchasing problems like delivery issues and supply shortages.
Since most tier-one suppliers use the exact ports, factories, and sub-suppliers, diversification is not an easy task. Hence, purchasing managers ought to collect supplier intelligence in order to avoid encountering the same purchasing problems with different suppliers.
2. Lack of visibility
At present, the cost of labour, manufacturing, and the raw material is rising worldwide. Hence, the price increases are passed from the suppliers to customers. This is also being seen as an opportunity by some suppliers in order to raise their overall prices.
For fast decision-making, purchasing managers require reliable supplier intelligence. In 2020, around 41% of procurement leaders discovered that their supplier data was inadequate. The shortage of supplier visibility and supply market impacts the company's negotiations, spending, supplier partnerships, etc. So, it must be ensured by the purchasing teams that they have timely and accurate information about the suppliers and supply market.
3. Collecting accurate data and insights
While purchasing, standing purchase orders, market pricing, supplier KPIs, company inventory, upcoming contract renewals, and product catalogues, among others, give valuable insight.
For executing definite purchasing decisions, purchasing managers require reliable and accurate data in order to prevent purchasing problems that might cause excess or shortage of inventory while helping in keeping track of spending and contracts.
For instance, collecting correct PO data can benefit purchasing managers by conducting a three-way matching. Without cross-checking purchase order data that was negotiated with the suppliers, no purchase can be completed. In the instance of any discrepancy, like unmatched delivery quantities with the amount invoiced, purchasing managers are obligated to take action.
If the purchasing teams are unable to easily access this data, organizations bear the financial losses while missing out on strategic opportunities. A dependable purchasing software accumulates accurate data, and the purchasing process is streamlined, reducing human errors significantly.
4. Implementing digital technologies
It is essential to buy software in order to grasp critical and accurate data that drive organisations away from bad partnerships and financial losses.
But some purchasing teams are yet to integrate digital technologies into their purchasing process. The main reason behind this is the costs associated with automating and digitising their whole supply chain.
However, organisations don't afford the use these technologies, i.e., purchasing software. The future of an organisation's growth and profitability is Technology. Technology gives organization a big picture of how procurement and purchasing fit into an organisation's more significant goals.
It is crucial that the Purchasing and procurement teams opt for the right procurement software that guarantees efficiency and profitability in the long term.
5. Building rapport with key stakeholders
The days when procurement managers reviewed the expenses made are over. By Employing the latest spending and analytics tools, companies are able to track expenditures even before it occurs.
Due to this, it is essential that procurement departments work along with stakeholders throughout the organization. Procurement leaders must understand the recurring orders, what each department demands, who make purchasing decisions, and how much they cost.
Any problems linked to purchasing encountered by the procurement department affect the company’s bottom line. By positioning themselves with every division in the organization, purchasing professionals are able to make sure that the purchasing needs of that department are included in the budget of the organization as well as in the decision-making process.
6. Implementing compliance
Another purchasing problem is compliance since purchasing policies are usually challenging to implement within organizations.
In the absence of compliance rules and policies, the operations of a company are more vulnerable to potential litigation, reckless spending, and more. Compliance is also crucial for achieving sustainability, supply chain transparency, and risk mitigation.
Organizations ought to have a precise set of compliance rules for internal teams as well as external partners, including suppliers. This establishes a standard for every department’s supplier and spending performance. Also, it shields companies from fraud.
Similarly, purchasing software is able to help by permitting select users in every department approval and purchasing access.
7. Creating or using contracts
Generally, purchase orders serve as a binding contract for the supplier and an organisation in case the supplier receives an order. The PO states the order description, price, product specifications, quantity of items, and payment terms.
Still, it is required that the organisations have individual contracts defining their working relationship with the suppliers. Thus, contract management holds an integral role in procurement. Contracts help shield the companies from litigation issues, put delivery and product standards in writing, and put agreed-upon pricing. The contract's terms must abide by the organisation as well as the supplier.
8. Optimizing the purchasing process
Purchasing managers are accountable for selecting the best offers, accepting deliveries, processing payments, identifying company requirements, and placing orders.
When manual processes are used by companies, there is no room left for errors, and things take more time. Purchases begin with either a phone call or an email and turn out on a spreadsheet, to later be recorded by an accountant when an invoice is received by them. The manual process hampers the growth and profitability of an organisation.
Purchasing problems that can be caused by a manual purchasing process include repeated orders, ordering wrong items or quantities, lack of safeguarding for purchases etc.
In contrast, an automated purchasing process saves money and time and minimises errors. Every step gets recorded automatically to avoid unnecessary expenses so that only the best offers get accepted, received, and paid as approved by the suppliers.
Purchasing managers are also accountable for the optimisation of the purchasing process and so are liable to find the best solution possible.
9. Issues with deliveries
One more purchasing issue is incomplete, delayed, or damaged deliveries. Due to these issues, there can be a delay in product deliveries to customers and threaten company continuity.
Among the best methods to ensure that purchasing managers expect fewer problems with deliveries is recording and periodically reviewing supplier performance.
But the challenge of achieving visibility into the supplier’s processes persists, including timelines and delivery routes. This type of supplier intelligence is extremely valuable for dodging delivery issues.
10. Choosing the right vendors
The purchasing managers must pick suitable suppliers and vendors to reduce the likelihood of having issues with deliveries.
A proper assessment of suppliers implies ensuring they have the resources to meet references and orders that support them. For instance, reviewing the bank references of suppliers can add to trust, clearing any doubt related to financial problems like low liquidity or bankruptcy.
Purchasing managers should carry out the background checks necessary prior to an order's placement with a supplier. Preferably, they can access the previous order data of the supplier in order to inspect their performance.
From making decisions about strategic sourcing to maximizing saving opportunities, purchasing managers considerably impact the company’s growth, profitability, and productivity.
Senior Content Writer at Procurement Resource
Prakhar Panchbhaiya is an accomplished content writer and market research analyst. With over 4 years of experience in content creation and market analysis encompassing many industries, including pharmaceuticals, nutraceuticals, biochemistry, healthcare, ed-tech, and Food & Agriculture, he has been creating quality content for multiple sectors. He is a Biochemistry major with sturdy backing in a PG diploma in digital marketing, helping in the exhaustive content creation based on extensive research and competitive marketing.