The role of procurement has evolved drastically over the years. From an erstwhile cost-saving function to an invaluable strategic partner with responsibilities that span risk management, development of new product, contract compliance, supplier performance, sustainability impact and more, it encompasses myriad roles and responsibilities now.
Today’s procurement operation challenges can be attributed to inadequate capacity, further enhanced by the lack of understanding by internal stakeholders about the new role of procurement. Thankfully, the presence of Enterprise Resource Planning (ERP) has helped in the successful tackling of a lot of these issues.
To have a deeper understanding regarding the role and challenges of this function, exchanging carried out an international study of procurement professionals. 830 procurement decision makers were interviewed between January and March 2015, across five geographic markets: US, UK, Germany, Spain, and France. The study included respondents from a cross-section of sectors and company sizes, dealing with both indirect and direct procurement, and is the second largest study of procurement professionals ever conducted. The issues highlighted in the study are as below:
Challenge #1: Skewed KPIs
Today, the procurement decision makers have a gamut of responsibilities in this evolving function and yet they chose to stick to “cost-saving” as their top-ranked KPI with a staggering 47 per cent giving their nod for this. Given the current scenario, the procurement officer is responsible for wide-ranging responsibilities right from risk management to sustainability impact and hence, the cost-cutting job is now more of a legacy thing. Here, the same set of people listed CSR/Sustainability impact was least important with only 1 per cent.
These results strongly indicate that there is a problem with the current KPI structure. There has to be a paradigm shift in terms of the metrics that track the procurement’s performance and what it actually delivers.
This is when our ERP software helps you out! Our ERP system (Enterprise Resource Planning) can allow a listing of previously used suppliers. If you have inputted their price previously in other projects, the prices will be shown under “unit cost”, thus facilitating easy comparison of old price and newly quoted. The purchaser can select preferred suppliers and justify it by putting in their remarks and the collected info will then be routed to a final approving manager for their viewing.
Challenge #2: Lack of Internal Engagement
Since times immemorial, Procurement has not been given its due, is what Procurement decision makers feel. This feeling is brought to the fore by this study, where the involvement of internal stakeholders was seen as a challenge by 64 per cent and 14 per cent thought of it as an extreme challenge.
The real strength of Procurement is not being realized as a result of that it’s causing problems in its performance by restricting business success and not viewing it as a strategic partner. More engagement from internal stakeholders is required to acclaim the status, it now commands.
This issue can be resolved with focused internal engagement and properly propagating the value of procurement. Use of analytics, tracking deliverable through score cards, handing team members with role-centric job titles also shall help to build up the tempo. This is what our ERP does. It fully integrates the workflow of your business to obtain highly accurate numbers throughout all departments and business functions. Reports can be easily generated which provide the management a clear visibility and allow them to make strategic decision onto their business.
Challenge #3: Capacity Issues
80 per cent of the procurement decision makers have cited time crunch as a major challenge saying that they are always hard pressed for time, owing to capacity issues and 20 per cent go on to say that it’s a major challenge. There has always been a reluctance in terms of the KPIs and hence never had adequate human resource support despite the changing scenario.
This also is handled wonderfully by our Enterprise Resource Planning (ERP) system where one can set the required procurement date, quantity inside material requirement planning. This is to reduce the risk of not able to start production due to lack of materials when the machines are scheduled for production. This prevents delay and incurs a higher cost of production. Prevent from over ordering or double ordering of materials and you can actually do a stock reservation for the production.