Procurement risks are often caused by the following mismanagement and proper implementation of SRM can manage and control them:
Poor examination of business requirements
Procurement arises when departments or divisions in an organization encounter a need for certain products or services. A possible mistake here is ordering excessive items or ordering insufficient items. A non-practical schedule and budget add to this misevaluation and result in a waste of time and money.
Well, it’s not just about the risk of throwing money down the drain! Such miscalculations may even negatively affect work goals such as delayed projects and producing substandard outcomes. Which can lead to customer dissatisfaction, loss of trust and brand loyalty, placing the entire brand at risk of losing both existing and new clientele. You are looking at a potential decrease in sales or revenue. So, this is not what your company would want to jeopardize.
To avoid over or underestimation of items, track consumption or usage regularly, carefully evaluate needs, and plan a practical schedule and budget. Importantly, make purchases only when you need them, do not make buying a strict routine. SRM can increase the visibility of the business requirements and control the approval processes.
Ineffective vendor selection and management
As a business, your ability to meet your clients’ demands or expectations partly relies on your vendors. After all, it is your suppliers who help fulfill your business needs. They certainly are the hidden gems to your success. Which is why it is crucial to choose the right suppliers. Who are the right suppliers? At a basic level, those who can provide stable, reliable supplies at good prices for you. When companies do not source from reliable suppliers, order misplacement and incorrect and delayed deliveries are a few problems of many that pose a risk of failing projects and shoddy production of the brand. Again, this eventually affects your customer base. SRM allows you to select dependable suppliers methodologically.
Once you select dependable suppliers, establishing strong ties is vital as a good relationship with your suppliers helps minimize costs through striking special deals and discounts. Some suppliers may even become flexible i.e., willing to take in your last-minute orders and tend to your fluctuating demands. Therefore, your vendors should be considered as your partners, for these are some powerful collaborations.
Dealing with inaccurate data
Manual procurement is a lengthy process that involves long paper trails or email threads from purchase requests and approvals to placing PO, tracking order with vendors and payments, making the procurement team prone to confusion and overlooking essential information that can lead to delays and missing out on deals. Additionally, in terms of tracking expenditure over time, manual methods of data entry into excel sheets may be time-consuming and are susceptible to errors. SRM can provide your teams with real-time accurate data.
This is a type of spending behavior, where purchases are made outside pre-negotiated contracts leading to profit reductions. This can result from the lack of clear spending policies, poor contract management, and no control over using office resources and privileges. Additionally, most users find their procurement process and system to be lengthy and complicated so they often look to escape the system and bypass control processes. Thus, there are compliance and financial risks that can cause uncontrolled expenditure and incurring significant losses in the long run. Hence, an aim here would be to establish procurement compliance. SRM allows you to set clear spending policies and automatically enforce them.