10 Most Costly Procurement Mistakes and How to Avoid Them
The effectiveness of your company’s purchasing ability depends on your procurement system. An inefficient system leads to a whole host of common procurement and purchasing problems. Thankfully, these mistakes aren’t all that difficult to correct.
The most common procurement mistakes have fairly simple solutions. Many problems in the purchasing department can be solved with technology. Others are a result of human error or organizational shortcomings. Even when using purchase order software, there are still some tasks that need a human touch. It’s easy for purchasing managers to get into the habit of doing things a certain way and overlook areas where the purchasing department can improve. Here are a few of the common procurement mistakes you’re likely to encounter, along with steps you can take to avoid and correct them.
1. Not Negotiating
Most of the time, you assume that the price you see is set in stone. And you’re often right. But with suppliers that you plan to maintain a long-standing relationship with, it can be worth it to ask if they’ll negotiate deals on repeat orders (perhaps in return for early payments, which you can manage with AP software). Just be professional about your request. You don’t want to alienate your suppliers by pestering them trying to bargain the price down.
2. Ignoring Your Suppliers
Suppliers are often a good resource for learning more about available products and finding the best deals. Maintain a good relationship with your suppliers and keep track of their current communications so you don’t miss-out on something could benefit your company. You might just snag a good deal or be the first to try out their new products.
3. Going Over Budget
Assuming your organization isn’t prone to reckless spending, going over budget is usually an issue with coordination and/or communication. This is something you can’t afford to ignore. Combat this common procurement problem with regular budgetary updates. Be sure you’re communicating with all the links in your supply chain and getting everyone on the same page.
4. Making Snap Decisions
Rushing your buying can lead to poor decision making. While timeliness is important, it pays to shop around for the best deal and double-check with others in your company (especially for large orders) to make sure you need the items being ordered and how large of an order to place. Purchase order software can help with this by keeping track of old orders so you can see how much you used in the past and check to make sure no duplicate orders are placed.
5. Isolating Major Decisions
You want your procurement system to move things along smoothly. In pursuing that goal, it’s tempting to not bother with looping other departments in on purchasing decisions. But that can backfire in some cases. For major purchasing decisions that will affect other departments, it makes sense to get their input before making the final order. Keeping lines of communication open goes a long way toward making purchasing decisions that benefit the whole company.
6. Being Too Rigid
In a fast-paced business world, inflexibility can take a serious toll on your procurement system. A procurement system that’s too rigid means you won’t be able to respond quickly if one of your suppliers runs out of an item you need or if one of your suppliers’ competitors offers you a better deal. You’ll need to find a balance between lean and agile procurement that works for your company.
7. Failing to Establish Policy
While flexibility is important, you should have a plan in place to keep things moving and to prevent or quickly deal with obstacles. Without a clear policy in place, employees in purchasing may use different methods for entering purchase order information or handling issues in receiving. Having a policy makes it easier to catch common procurement mistakes before they happen and effectively handle any issues that do crop up. Just remember to review the plan and standards regularly to keep it up-to-date with your company’s current needs.
8. Not Sharing Your Policy
It’s a good idea to have a vendor compliance policy. But it’s not going to do you much good if your vendors don’t know about your standards. Sharing this document lets suppliers know what they’re agreeing to when they do business with your company. It encourages clear communication and helps protect your company if legal issues arise in the procurement process.
9. Refusing Technology
In some cases, organizations are suspicious of using technology to improve business processes. But companies using e-Procurement software drastically reduce their requisition order cycles, their requisition to order costs, and cut back on maverick spending. They also tend to increase their spend management. Procurement software is also secure and easy to use.
10. Not Using Technology Well
Reliable Procurement Automation Software eliminates many common procurement mistakes, but only if you’re using it effectively. This software lets you generate purchase orders quickly and efficiently, making it less tempting to skip using POs, but that’s not all it can do. Procurement software also makes enforcing company policy and best practices simple and stores all the information in an easily searchable format so you can keep track of funds and match purchase orders to incoming goods. You just have to take advantage of those features and make the effort to set up your company’s custom tolerances within the software. Get in touch with us today to schedule a free demonstration and see for yourself how purchasing software can help your company.