Identifying Holes in Your Procurement Management Strategy
Having a sustainable procurement model not only helps you build a reliable supply of the products your organization needs, but it can also support robust performance and efficiency. However, due to the pandemic and the supply chain shortages it has caused, it has become necessary to re-examine your procurement strategy and your provider relationships.
An outdated procurement management strategy can leave your organization vulnerable to waste and resource shortages that threaten optimal business operations. In this post, you’ll learn the warning signs that indicate your procurement strategy needs improvement and get tips for making the necessary changes.
Holes in Your Procurement Management Strategy? Look for These Signs
According to business consultancy Kearney, procurement represents 30 percent of a service company’s revenue and at least 50 percent of a manufacturing company’s revenue, making it one of the most critical factors affecting a company’s performance. However, if you’re operating with a procurement strategy that isn’t fully aligned with your organization’s needs and goals, you could be losing time, money, or both. And if your organization is in the healthcare industry, a lackluster procurement management strategy could impact patients’ health and well-being by causing delays for critical, life-saving medical procedures.
Here are four key signs that indicate your current procurement management strategy could be hurting your organization more than helping it.
Your vendor assessment and selection process is occuring in a vacuum
Your vendor relationships typically extend beyond one group or function within your organization, so the assessment process should, too. However, if your procurement strategy doesn’t leave you room to gather insights from key stakeholders and involve them in the vendor decision-making process, you can end up making a selection that falls short of your overall organizational needs.
Just as you wouldn’t sign a major business deal without the involvement of key internal stakeholders, you shouldn’t leave them out of your vendor partnership deals, either. By rushing through the selection process or failing to address the pain points of key stakeholders, you could be left with a supplier arrangement that wastes money and leaves your organization to face product shortages and service gaps.
Your selected vendors aren’t living up to your service-level agreements
If you have product or service providers who can’t deliver on what they committed to, the procurement process you used to select them could be the reason. For example, with a managed service such as background screening, selecting the wrong provider can leave you with insufficient processes and technology. As a result, you could be stuck with a provider who conducts background checks without meeting your expectations for quality, accuracy, and turnaround time.
You’re feeling nickeled and dimed by extra fees for services you thought would be included
It’s more common than you think. You work with a service provider who sold you on “bundled” services, but then you get charged extra for services you thought would be included. If you’ve had this experience, it’s possible that the gaps in your procurement and request-for-proposal (RFP) process didn’t fully uncover the provider’s approach to service fees.
A poor procurement management strategy can miss key factors, including hidden fees. If you assume all providers will explain those fees up front, you’re likely to experience invoice surprises later. By not asking the right questions from the start, you end up wasting money and blowing through your budget.
Your service providers aren’t providing assistance for budgeting or creating efficiencies
Given today’s uncertainties and the rapid pace of change, it’s not enough to work with product and service providers who merely provide transactional value. You also need providers to help you boost your productivity and develop sustainable purchasing practices. Your procurement strategy could be lacking if it doesn’t help you identify providers who offer ideas for best practices, regular reviews of your processes, and advice for budgeting and cost savings.
How to Build a More Robust Procurement Management Strategy
The complexities of procurement today make it necessary to have a proven strategy for evaluating suppliers, automating manual processes, and improving visibility into your supply chain. Given this reality, it’s not surprising that many organizations are recognizing the need for change. In a McKinsey survey, 93 percent of procurement leaders said they planned to improve the resilience of their supply chains, with nearly half saying they would even be willing to give up some short-term efficiencies to do so.
Thankfully, improving your procurement management strategy doesn’t require sacrificing the efficiency of your internal processes. By taking the following steps, you can make better procurement decisions and select better partners.
Review existing provider relationships to identify opportunities for improvement
Every provider relationship has room for improvement. By periodically reviewing provider contracts and relationships, you can identify potential areas where providers can step up their services so they better meet your needs. A lot can change throughout a two- or three-year product or service contract, so be sure to incorporate periodic business reviews to make sure you’re receiving the service level you signed up for with each provider.
Make sure the right stakeholders are involved in the procurement and RFP process
Instead of managing the RFP process single-handedly, make sure you involve internal process champions and critical end users. For example, when managing an RFP for background screening services, your procurement team should partner closely with HR and involve stakeholders from the legal, compliance, and IT departments.
Involving relevant stakeholders not only helps you uncover potential gaps in a provider’s products or services, but it can also smoothen the onboarding process with new vendors as they begin to work with your organization.
Develop a sustainable procurement risk management strategy
To avoid shortages that might paralyze your regular business operations, it’s necessary to build a sustainable procurement strategy that helps you access the products and services you need, when you need them. By helping providers understand your procurement goals, planning for contingencies, and upgrading the technology you use to manage your supply chain, you can strengthen your supply chain and stay aligned with your product and service partners.
Consider the total cost of ownership when evaluating provider options
An effective procurement management strategy takes into account the soft costs of products and services—quality, compliance, customer support, and many others—in addition to the hard costs.
By understanding and monitoring the soft costs, not only can you understand how much your products and services truly cost your organization, but you can also see what unnecessary extra costs a great provider can help you avoid. For example, when contracting for background check services, it’s critical to understand how well a provider can help you avoid the costs of a poor hiring decision based on inaccurate and poor-quality background check results.
Addressing Gaps in Your Procurement Management Strategy
If you’ve discovered any shortcomings in your procurement program, particularly since the start of the pandemic, you’re not alone. Organizations everywhere have experienced shortages in finding the right people, equipment, and other products to support their operations.
Given the possibility that the resources you need to operate efficiently may be in short supply for some time, it’s critical to improve your procurement management strategy in order to make more effective purchasing decisions. In doing so, you can better position your organization to select product and service partners who will deliver as expected while also helping you achieve efficiency, compliance, and cost savings.
As one of the most critical tools for evaluating potential product and service partners, the RFP process is core to an effective procurement management strategy. By designing an RFP that asks the right questions, involves all relevant stakeholders, and highlights potential red flags in provider responses, you can develop a procurement program that serves your organization’s needs now and in the future.
For more insights, read “RFP Scorecard Checklist: How to Conduct an Insightful RFP Process.“