Updated: Aug 3
Procurement Challenges and Responsibilities in Modern Enterprises
This post has been updated on the 3rd of August 2023
Procurement teams encounter an expanding range of challenges and responsibilities in modern enterprises. As their role evolves, there is a heightened focus on broader corporate strategy and increased efficiency. They are inundated with various tasks, including supplier management, purchase order processes, and invoice handling. Unfortunately, these tasks are not becoming any easier. To learn more about the challenges faced by procurement teams during COVID-19, click here.
Through extensive discussions with business leaders, we have identified a total of 26 recurring issues that procurement teams commonly face. Working alongside industry experts, we have condensed these challenges into seven key areas that it is crucial for you to be aware of.
1. Challenge: Addressing Complex Internal Procedures to Optimise Procurement
The Pareto Principle, also known as the 80/20 rule, states that approximately 80% of effects are caused by only 20% of the factors. When applied to procurement, this principle suggests that 80% of your spending is allocated to just 20% of your suppliers. Visually, this can be represented by a steeply declining arc on a graph, with the "tail" of the graph representing smaller suppliers and their associated expenses. Due to the larger number of suppliers in the tail spend category, your team often dedicates most of their time working with them, in addition to navigating through lengthy and complex internal procedures. (Learn more about these procedures here.)
The solution: Managing Long-Tail Spend with Enterprise-Spend Management Software
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: Overcoming Lengthy Process Cycles in Procurement
Finance and procurement teams frequently employ identical procedures for both long-tail supply chains and strategic suppliers. This means that you must navigate the same obstacles, including assigning purchase orders, approving invoices, and supplier onboarding, for one-time purchases and irregular suppliers. Unfortunately, this process is burdensome and results in substantial delays and strained supplier relationships.
The solution: Enhancing Efficiency Through Streamlined Ordering Processes
By implementing a convenient, consistent, and compliant process backed by data, procurement teams can enhance their efficiency when working with all suppliers, including long-tail ones. Instead of imposing demanding manual procedures on every supplier relationship, you can streamline operations and simplify transactions and supplier maintenance processes. For instance, transitioning to B2B online purchases significantly expedites the entire procedure. Learn more about suppliers and B2B online purchases here.
3. Challenge: Reducing Workloads for Accounts Payable in Procurement
Large enterprises' accounts payable (AP) departments primarily focus on managing invoices from long-tail suppliers. This responsibility consumes a significant amount of their time and makes them the largest and most costly financial departments within the enterprise. The sheer volume of invoices, often reaching tens or hundreds of thousands per month, leads to inevitable delays, missed payments, and expensive errors. To learn more about how to future-proof your procurement operations, check out this article.
The solution: Smart Software Solutions for Managing Invoices and Payments
Imagine the convenience of consolidating thousands of invoices into a single monthly invoice. By eliminating the complexity of managing individual invoices, you can automate a significant portion of the AP workload. With the support of a reliable third-party payment and invoicing platform like Mazepay, you can even pay invoices before they reach the AP department, reducing the risk of late-payment fees and maintaining positive supplier relationships. Additionally, receiving a monthly bank statement instead of multiple invoices simplifies their life. Learn more about Mazepay's invoice management services.
4. Challenge: Automating Onboarding to Accelerate Supplier Integration
Large corporations may require up to six months to onboard new suppliers. However, in today's fast-paced world, where even global enterprises are embracing remote contractors and occasional suppliers, this timeframe is inadequate. While major suppliers may be accustomed to corporate bureaucracy, smaller ones are not. They are less inclined to work with businesses that take months to onboard them.
The solution: Streamlining Onboarding Processes for Faster Partnerships
To fully enjoy the advantages of today's growing outsourced workforce and collaborate with the most appropriate suppliers, businesses must streamline their onboarding processes. By implementing an automated, data-driven platform, procurement can become a facilitator of valuable business relationships. This platform eliminates the need for manual supplier creation and maintenance, as well as breaks down information silos. Check out this article on reaping the benefits of selling B2B products and services.
5. Challenge: Improving Supplier Relations through Efficient Payments
If you inform most remote contractors or smaller suppliers that it will take six months to onboard them, they may reject any potential partnership with your organisation. Additionally, many suppliers and contractors prefer faster payment terms than NET 30, 45, or 60. Failing to provide a fast, efficient, and streamlined process for connecting with new suppliers will limit your access to numerous opportunities.
The solution: Timely Payments for Strong Supplier Relationships
Strong supplier relations rely on fast and efficient communication, prompt payments, and streamlined onboarding processes. By automating invoicing and payments, you can lighten the workload on your AP department and ensure suppliers are paid faster. This improved relationship also results in quicker delivery of supplies and services for the enterprise.
6. Challenge: Lack of Clear Delegation
One of the challenges faced by businesses is the lack of clear business rules and task delegation. This can result in late payments, which not only harm supplier relationships but also lead to additional fees. Without a streamlined and automated process, employees may be unsure of their delegated responsibilities, causing confusion and potential delays in workflows and payments. Furthermore, in the event of an absence, tasks may not be easily delegated, further exacerbating the problem.
The solution: Automated Processes for Effective Operations
Clear business rules and task delegation are essential. Late payments can harm supplier relationships and lead to extra fees. Automating processes ensures that each employee knows their responsibilities without any confusion. In the event of an absence, tasks can be easily delegated, preventing delays in workflows and payments. A streamlined and contemporary procurement process keeps both businesses and suppliers informed, eliminating the need for uncomfortable calls from unrelated parties.
7. Challenge: Embracing New Technology in Procurement for Improved Efficiency
In today's rapidly evolving landscape, innovative solutions are constantly emerging to address both new and existing challenges. However, the introduction of new technologies often disrupts established norms and requires proactive action. This can be particularly challenging in companies with multiple departments and stakeholders, especially when specialized professionals are accustomed to a specific way of working. While subscriptions, new software, and virtual card solutions all provide convenient remedies for long-standing issues, embracing these changes is never a simple task. Learn more about the benefits and drawbacks of subscriptions for B2B enterprises.
The solution: Finding Innovative Solutions to Address Procurement Challenges
In the digital age, the power of the web is at our fingertips. With just a simple Google search, we can find solutions to any problem we encounter. This ease of access has revolutionized the way we address issues and make decisions. Now, we have a multitude of options to choose from, allowing us to test and evaluate different solutions. Armed with this knowledge, we can effectively persuade decision-makers to embrace new solutions that offer significant benefits over the challenges they may present. Leaders are more willing than ever to take risks and invest in innovative solutions, especially if they result in cost reduction for their organization. By looking in the right places, we can easily find solutions that optimise cost management for the entire enterprise.
At Mazepay, we believe that procurement should not hinder business relationships, but rather enhance them. That's why we have developed a comprehensive solution that addresses all these challenges and simplifies the lives of both parties involved. If you're ready to experience the benefits of our solution, contact us today to get started.