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With the fourth quarter just a few weeks away, chief procurement officers (CPOs) and their staff are taking steps to start closing out the year and looking ahead to 2023. And while this is a typical exercise for organizations as the year comes to an end, 2022 has been anything but “typical” on a number of different fronts.
The ongoing pandemic, supply chain shortages and rising costs are just some of the top pain points that procurement professionals have been dealing with this year. Add inflation, fluctuating fuel cost, long order lead times and an overarching air of uncertainty to the mix and you get a “perfect storm” of problems for CPOs to identify, address and overcome.
“The pandemic highlighted how interconnected the world is right now,” the World Economic Forum points out. “Multiple bottlenecks have disrupted global supply chains – the networks of people, companies and modes of transport that order and manufacture goods and deliver them to warehouses, shops or even right to our doors.”
Here are four current issues that are keeping CPOs up at night as 2022 begins to wind down, and some tips on how to work through and conquer these challenges.
- Excessive risk in the procurement processes. “Supply risk is always a major challenge in the procurement process,” Procurement Cloud says. “Market risks, potential fraud, cost, quality, and delivery risks constitute the most common type of risks. Additionally, compliance risks like anti-corruption, policy adherence, and more keep your procurement leaders up all night.”
One way to manage these and other risks is by combining centralized, efficient, transparent data with better supply management, DocuCollab advises. By implementing procure-to-pay software, for example, CPOs can reduce risks, minimize processing time, streamline their purchase-to-pay cycle, and better manage their supplier relationships. - The use of “dark” purchasing and maverick spending. These are purchases that are made outside the defined procurement process. “Such uncontrolled spending can ultimately be expensive for businesses,” Procurement Cloud notes. “When items purchased cannot be justified using capital outlay or material inventory, the resulting loss of revenue and control is a significant challenge for organizations of all sizes to tackle.”
One good strategy for reducing maverick or rogue spend is to bring your spend under management. Other good steps include creating a detailed breakdown of how much you’re spending outside existing contracts; identifying the vendors and stakeholders on your team who are the main drivers of maverick spend; and then “equipping your procurement team with tools that simplify the process and make it easy for the rest of the organization to collaborate with the procurement team,” Procurement Cloud advises.
3. Poor control over spending. “Uncontrolled spending is one of the toughest challenges faced by procurement professionals,” according to DocuCollab, which points to accidental orders, rush orders and purchases from suppliers selling additional items made outside the company’s established procurement procedures as just some of the ways spending can get out of control quickly. “As these purchased items cannot be readily accounted for in financial and inventory records,” the company says, “it complicates procurement strategy, department budgets, inventory management, and financial audits.” By automating spend management, CPOs can ensure that all spend categories are managed as effectively as possible. For example, a procure to pay solution helps CPOs gain control over indirect spend, track complex pricing structures and identify exactly where unwanted spending is happening.
4. Information overload. We’re all feeling it right now, but CPOs are particularly vulnerable to information overload and the negative impacts that come with it. From minor decisions like “Which vendor will give us the best value for our breakroom napkins?” to major challenges like multi-stage production initiatives, CPOs need good, accessible data in order to make informed and strategic choices.
“A lack of a centralized data solution can [not only] wreak havoc on your analytics, planning, and macro-scale decisions, but it can also toss a spanner in the workflows at all stages of procurement,” Rob Biedron writes in “Top Procurement Challenges Facing Businesses Today.” For example, inaccurate inventory totals can lead to unnecessary orders, or an unexpected stock-out right when the product in question is needed most.
Biedron sees automation as one key to overcoming information overload and some of the other challenges highlighted in this article. “Automation frees your staff from low-value tasks to focus on more strategic concerns,” he writes. “Human error decreases, speed increases, and your overall procurement efficiency skyrockets.”
