The effectiveness and success of procurement departments are as important as the marketing and sales departments in an organization. Unfortunately, every business’ ability largely relies on the effectiveness of their procurement systems. If the system works well, the purchase of products and services flows smoothly. On the other hand, simple procurement mistakes can lead to serious issues.
Thankfully, technology can solve nearly all your organization’s purchase department problems. Besides, most business procurement mistakes have simple solutions. Be sure to watch out for the following procurement mistakes.
1. Exceeding the budget
It’s common for organizations to exceed their procurement budget. This can happen for two main reasons. Most businesses spend excessively or make bulk purchases at the beginning of the budget year. Organizations can also go beyond their budget due to poor management of operational costs.
Regardless of the cause, companies should plan accurately to ensure that their budget can cover the entire financial year. Purchases should be placed accordingly. Besides planning accurately, setting monthly budgets can help curb overspending. Monthly budgets make it easy to track real-time expenses.
2. Not negotiating
Accepting quoted prices without negotiating is another common and costly procurement mistake. In most cases, procurement departments accept prices quoted by suppliers as is. Assuming that the catalog price is the final price is wrong. Businesses should negotiate product or service prices and other additional costs, such as packaging and shipping charges.
If you intend to maintain a long-standing partnership with your supplier, you should consider negotiating deals on large or repeat orders. That said, your negotiations should be professional and not outright bargaining that happens in the streets.
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3. Not nurturing relationships with suppliers
Not keeping a good relationship with suppliers is another common procurement mistake that most teams overlook. Businesses can gain a lot by building good relationships with suppliers. For starters, they can share new ideas or introduce you to new products that can benefit your organization.
Suppliers also get to share new supplier programs, saving options, and opportunities for innovation with your business. Fortunately, building supplier-relationship is the same as developing other business relationships. Simply subscribe to their newsletters, follow their social platforms, and read and respond to their emails. You can also schedule regular calls to personalize your interactions.
4. Ignoring technological innovations
Unfortunately, most procurement teams haven’t adopted automation techniques, relying solely on ERP and OCR procurement. Like in other sectors, integrating technological tools in your procurement can improve efficiency and minimize errors. The key to the efficient use of AI in procurement is choosing the right procurement tools.
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5. Not creating a compliance policy
Creating a compliance policy benefits both buyers and sellers. Having guidelines ensures that the procurement process remains consistent, reliable, and ethical. Without compliance rules, procurement operations are exposed to costly mistakes and litigation. Therefore, create a compliance checklist that highlights all the red-flag issues. You should also train everyone in your procurement department and review it annually.
Even though procurement is a complicated process, it shouldn’t necessarily be. While even procurement experts can make mistakes, taking the necessary measures and enlightening your procurement team about these common mistakes can reduce risks of errors. That aside, use arising mistakes as an opportunity that your team can use to learn and improve.