Updated: Nov 21
Procurement teams face an ever-widening array of challenges and responsibilities in today’s enterprises. As their role evolves, there’s a greater emphasis on broader corporate strategy and greater efficiency. You are bombarded with many activities ranging from vendor management to purchase order processes to invoice handling, and things aren’t getting any easier.
We identified no less than twenty-six recurring problems facing procurement teams during our many conversations with business leaders. Together with various industry experts, we’ve consolidated these into seven key challenges that you should be aware of.
1. Challenge: Lengthy process cycles
The Pareto Principle states that around 80% of effects come from 20% of causes. Applied to procurement means 80% of the spend goes to only 20% of your suppliers. Represented graphically, this looks like an arc falling steeply from the vertical axis, with the ‘tail’ of the graph illustrating smaller suppliers and related expenses. Because the tail spend represents a far larger group of suppliers, your team often spends most of their time working with them, not to mention the already lengthy and arcane internal procedures (learn more below).
The solution: Handle your long-tail processes from one platform
So-called long-tail spend, representing the final 20% of the total (if we’re using the Pareto Principle as a guideline), often isn’t recognised as a cost-savings opportunity. After all, it isn’t easy to work with hundreds or even thousands of occasional suppliers and one-time purchases. But, by handling all indirect suppliers through a single platform, it’s possible to turn that 20% into a more controlled spend while freeing up time to focus on the 80% spent on core suppliers. Consider finding one of the many enterprise-spend management software available on the market.
2. Challenge: Arcane internal procedures
Finance and procurement teams often use the same processes for your long-tail supply chains as you'd use for your strategic suppliers. In other words, you end up having to go through the same hoops, such as assigning purchase orders, approving invoices, and supplier onboarding, for one-time purchases and irregular suppliers. It’s a cumbersome process that leads to significant delays and poor supplier relations.
The solution: Streamline your ordering process
With a convenient, consistent, and compliant process supported by data, procurement teams can work more efficiently with all suppliers, especially long-tail ones. Rather than trying to enforce the same demanding manual procedures on all supplier relations, you can instead streamline your operations and greatly simplify your transactions and supplier maintenance processes. For example, just switching to B2B online purchases makes the whole procedure faster.
3. Challenge: Excessive workloads for AP
Large enterprises' accounts payable (AP) departments often spend the overwhelming majority of their time handling invoices from long-tail suppliers. That’s why they’re usually the most extensive and most expensive financial departments in the enterprise. Furthermore, these enormous workloads, particularly when dealing with tens or hundreds of thousands of invoices every month, inevitably lead to delays, missed payments, and costly errors.
The solution: Reduce the workload with smart software solutions
Now, imagine being able to consolidate thousands of invoices into just one monthly invoice. If you can eliminate the complexity of handling individual invoices, you can automate a large part of the AP workload. With a third-party payment and invoicing platform on your side, you can pay invoices before they even reach the AP department, thus reducing the risk of late-payment fees and resultant poor supplier relations. And a monthly bank statement instead of many invoices makes their life easier.
4. Challenge: Slow onboarding processes
It can often take large corporations between one and two months to onboard new suppliers. In these days of instant gratification, when even global enterprises are tapping into the potential of remote contractors and occasional suppliers, that’s not good enough. While major suppliers may be more accustomed to corporate bureaucracy, smaller ones rarely are and are less likely to be interested in working with businesses that take months to onboard them.
The solution: Automate onboarding
To reap the benefits of today’s increasingly outsourced workforce and work with the most suitable suppliers, enterprises need to reduce the length and complexity of their onboarding processes significantly. Instead of procurement being a barrier to valuable business relations, it should use an automated, data-driven platform that eliminates the need for manual supplier creation and maintenance and breaks down information silos.
5. Challenge: Poor supplier relations
Tell almost any remote contractor or smaller supplier that it’s going to take two months to get them ‘in the system’, and there’s a good chance they’ll close the door to any relationship with your organisation. Similarly, many suppliers and contractors expect payment quicker than NET 30, 45, or 60. If you can’t offer a quick, efficient and simplified way to connect with new suppliers, you’ll shut out a world of opportunity.
The solution: Payment in time is a good start for good relations
Strong supplier relations depend heavily on fast and efficient communication, quick payments, and straightforward onboarding processes. By automating a large portion of the invoicing and payments process and thus reducing the workload on your AP department, you can ensure that suppliers can get paid quicker. This vastly more functional relationship also means having supplies and services delivered much faster for the enterprise.
6. Challenge: Lack of clear delegation
Despite the availability of more efficient and automated solutions, many large and established organisations struggle with arcane processes that only lead to unnecessarily increased workloads, higher expenditures, and human error. When these problems occur, suppliers often chase employees as they try to find out when they'll receive payment. Sometimes, it can take several months from receiving an invoice to getting a new supplier set up in the system and paid, which benefits no one. After all, the last thing you want is employees in marketing, for example, taking uncomfortable calls from suppliers chasing invoices.
The solution: Simplified project management and procurement
Clear task delegation is a must. Moreover, late payments will only damage supplier relations and possibly lead to additional fees. With a simplified and modern procurement process, enterprises and their suppliers will always be kept in the loop, which means you don't have to handle any more awkward calls by unrelated parties.
7. Challenge: Keeping up with new technology
Today's fast-paced development offers new solutions day by day for upcoming or existing challenges. On the other hand, new technologies disrupt the status quo and demand to act upon them. In companies that have many departments and stakeholders, it is not easy to start a change, especially if the specialised professionals are used to a certain way of working. Subscriptions, new software and virtual card solutions all offer ease for long-existing problems, but it is never easy to take the leap.