The procurement process of an organization is long and tedious. This is due to the requirements and the level of controls needed to ensure a transparent, and secure purchase of goods by the organization. Considering this, what are some common mistakes / pitfalls in the procurement process? We take a deeper look in this article.
What to Watch out for…
Are you working in a company / organizations’ procurement department? If so, you need to be aware of the following common obstacles that you will be facing:
Supplier constraints and capabilities
Which includes:
Difficulty in finding good suppliers
Companies often find it difficult to find a supplier who can work and supply goods and services as required. Meaning: Price, quality and availability of goods. Therefore, a good procurement process need to consider suppliers not only based on their perceived capabilities, but also one that has demonstrated their abilities over a period of time.
Disappointing supplier performance
The services provided by vendors are not in accordance with their promises at the beginning of the collaboration. When this happens, the purchaser of the goods and services will be at a disadvantage. Supplier performance needs to be measured consistently so as to avoid potential disasters along the way.
Inaccurate Pricing Data
Pricing for goods or services (especially commodities) can fluctuate. Companies and organizations can hedge price fluctuations by having a sound contractual agreement with suppliers, along with deal terms that may change if price fluctuation occurs above or below a certain agreed threshold.
Long Procurement Time
The length of the procurement process can affect the productivity of the company. This time constraint is usually caused by several things, including, but not limited to:
- Tender process that can drag on if not coordinated effectively.
- Negotiations with multiple suppliers can take a long time
- Being late in performing annual / periodic evaluation in order to extend contract agreements with incumbent suppliers.
- Finance department process of invoicing and goods receipt may take time and prolong the payment process to suppliers.
Fraud
Fraud is the most common and detrimental failure of a procurement process to an organization. Fraud occurs when there is a lack of control in the entire procurement process, but also attributed to the following:
- Opportunity. Fraud can occur because opportunities are present, such as: lack of supervision & control within the procurement department, lack of cross-department segregation of responsibilities.
- Information-led Rationalization. It only takes one person to commit fraud. A person knowledgeable in the requirement and spending budget of an organization can act on that information in a dishonest manner for his/her own financial gain.
- Pressure. Fraud can occur due to internal pressure within the organization. When an organization’s culture and conduct toward fraud is compromised, then fraud becomes an organizational problem which will exacerbate in the long run.
So how do you prevent various problems in the procurement process above? We recommend that companies apply strong Standard Operating Procedures (SOP) in the procurement process. Furthermore, the company also needs to determine a standard requirement for vendors, companies and employees. This is made easier today with the availability of eProcurement Softwares that utilize technology to ensure an accurate, transparent and effective procurement process.