Top six procurement challenges and the solutions to overcome purchasing problems

Procurement is a collaborative, complex function that involves identifying needs, selecting appropriate suppliers, raising purchases, handling commercials, compliance checks, establishing supplier relationships, and more. That said, procurement mistakes of even the smallest scale can have a big impact on your retail business.

However, proper strategic and meticulous procurement planning can help minimize errors, streamline processes, cut costs, and improve cash flow. This article will delve into a few of the common procurement challenges and solutions.

Not performing deep research

Procurement begins with understanding the needs of the store, but a common procurement mistake is not researching past purchase and sales patterns, supplier service trends, material quality during previous purchases, and competitive pricing.

Not conducting thorough research before deciding on a suitable supplier can result in overpaying for goods, receiving substandard items, increased logistics time, and more stockouts. These poor shopping experiences can frustrate demanding customers and stop them from shopping with you again.

Procuring beyond your budget

If procurement is exceeding the business’s budget either due to lack of communication, a visibility gap, or untracked purchases, you will end up burning money, affecting the capital. Sometimes, not inspecting the quality of goods while inwarding items and processing payment impacts supplier harmony and cash flow.

A good way to minimize the cost is to negotiate with suppliers for the best price, payment terms, and logistics costs, without compromising on the quality. Not having access to data and approved discount limits before negotiation can lead to confusion, missed opportunities, and affect revenue.

Impulsive buying behavior

Inaccurate rushed purchases due to fear of stockouts, sudden spikes in demand, or last minute inventory analysis is an often-faced procurement problem in retail. This kind of impulse buying without any strategy and demand analysis can result in locked up investments, overspending of resources, and poor cash flow.

Procuring goods from unreliable, unapproved vendors during such a crisis needs additional attention. Habituating to eleventh-hour purchases can prove to be fatal as there is a high risk of facing budget constraints, no stock present with the suppliers, delayed deliveries, and facing in-store stockouts.

Human errors in procurement

Procurement mistakes, like failing to notice any open order in transit, ordering items pending from the last purchase order, and raising orders for the same items to multiple suppliers, can result in duplicate orders and double the investment. Not accounting for returned and damaged items can add to procurement problems and confusion during the inwarding of goods.

Human errors due to incorrect items or quantities in purchase orders, mismatches in the invoice value against the purchase order, unsettled payment conditions, or mistakes in payment clearance can hamper the quality of purchases and delay the entire procurement process.

Not abiding to processes and KPIs

Even though flexibility in procurement is encouraging, it is also essential to stick to business standards and policies to ensure streamlined workflows. Not deciding the commercial conditions and procurement protocols beforehand can result in a waste of time, spending beyond budgets, poorly utilized resources, and accounting headaches.

Business transactions without approved legal and financial compliance policies cause most procurement problems and lead to disputes causing overpricing, poor delivery, or poor material quality. Staff should be updated on the latest processes, terms, and conditions; failing to do so can result in costly risks and legal issues.

Poor, nontransparent communication

More than half of procurement mistakes are caused due to a lack of transparency between internal procurement and finance teams as well as suppliers. A few reasons for these procurement problems are manual data entry, disintegrated purchase and accounting, isolated decision-making, and verbal communication of requirements within teams and to suppliers.

A lack of access to relevant data can result in inaccurate demand prediction, poor inventory control, frequent stockouts, and financial instability. Access to real-time data for staff can reduce time and increase the accuracy of business decisions, but data breaches and security threats pose the biggest challenges in procurement.

Solutions to avoid procurement mistakes

Procurement in a retail business is as important as any other operation, and procurement mistakes can affect overall business efficiency. Leaving them unnoticed can cause the balloon to pop.

Luckily, all the challenges faced in procurement have feasible solutions. Here are some of them that can help overcome common procurement problems.

Build a strong supplier relationship

Before choosing a supplier, explore the reviews, ratings, and testimonials for their store that showcase the quality of service they provide. Negotiate for win-win terms and conditions, and communicate objections, if any, to avoid misunderstandings in the future.

Once you select the supplier, ensure to keep your purchases, payments, and communications transparent between both parties for help during legal or commercial issues that might occur. Build a good rapport with suppliers and demand them to prioritize the supply to your stores on time.

Centralize your procurement process

Centralizing purchases and bill approvals ensures distinct purchase orders to suppliers, avoiding duplication and inefficient ordering. The central delivery of items eliminates errors, reduces time, and maximizes accuracy in material inwards, invoicing, and payment processing. Tracking any delays across the supply chain and ensuring the uniform quality of items becomes easier with centralized procurement.

With a single source of data, you can define accountability, ensure transparency, get more visibility into sales and inventory across stores, and make efficient purchase decisions.

Define a set of standard policies

Unclear policies and agreements are one of the procurement challenges that causes disorganization in the procurement structure. Define standard rules, policies, terms, and conditions. Get them approved by stakeholders regularly in order to accommodate the latest changes, if any. Mandate the raising of purchase orders for any requirements. Ensure internal teams are aware of all these policies.

Make clear documentation of the minimum order quantity or value, payment terms, payment cycles, schemes, expected replenishment frequency, lead time, and freight conditions. Inform the suppliers about these conditions and review them periodically.

Plan and procure in advance

Do regular stock audits, monitor the inventory level, and stay up to date on stock distribution across outlets with centralized control to manage inventory and plan procurement efficiently before stock reaches minimum levels.

Estimate the demand by referring to insightful reports and raise purchase orders in advance. Remember the orders in transit, yet to be dispatched, and items pending in previous orders before procuring again, and communicate the same to the supplier in writing. Performing a peer review before placing an order helps correct procurement mistakes, if any.

Adopt a comprehensive ERP

Around 50 percent of data analysis and procurement is done through spreadsheets. Manual data entry, analysis, and transactions are time consuming, inconvenient, inefficient, and error-prone due to negligence or boredom of repetitive work. Implementing a comprehensive ERP system can solve procurement problems in the manual process.

Past transactions and current inventory stored in a searchable database ensures complete transparency and can be easily accessed to make accurate purchase decisions. Duplicate entries and manual errors are avoided through checks in the software. Tracking purchase, delivery, inwarding goods, monitoring sales, and controlling inventory becomes a cake walk with mobile applications integrated wit the ERP.

Automate possible touchpoints

Automating procurement tasks ensures tasks are completed quickly and accurately. Setting reorders based on minimum and maximum stock helps raise orders before stockouts within a minimal amount of time and with the least efforts.

Using an AI-based reordering solution enables you to study supplier performance, forecast demand based on past sales, identify stockouts proactively, raise purchase orders, and more. It helps cut costs, avoid manual errors, streamline purchases, optimize cash flow, and improve the bottom line.

Monitor, negotiate, and improve

Track the purchases regularly, assess supplier performance, analyze prices and margins, and be ready with data to negotiate with the supplier for competitive pricing and good margins.

Track the quality of goods received during the last order so the store team can give their feedback about the service of the suppliers. Collect feedback from internal teams after every purchase, so you can raise a complaint or hold the payment to the supplier and improve the service and standards of delivery.

Conclusion

Making procurement mistakes is common, but realizing the problems and not committing them again is an important realization. Well-planned, strategic procurement practices can help overcome common procurement challenges like the ones discussed above.

Adopting a comprehensive procurement solution can streamline purchasing processes, improve productivity, reduce time spent, and increase accuracy. It helps avoid duplication, detect fraud, optimize resources, manage budgets, and achieve sustainable success. Do you wish to begin your journey towards procurement success? Get in touch with us today.