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Common Supplier Frustrations in Procurement

In 2022, CPOs are facing many challenges. We list the Top 3 as we see it.

diversity

The Largest Problems Every CPO Has In 2022

In 2022, CPOs are facing many challenges. We list the Top 3 as we see it.

What's out there, lurking in the fog?

The Critical Importance of Supplier Visibility

One of our users – let’s call her Anna – won the assignment to head up a new supplier diversity program at her company. She had authority to drive actions, budget to get things done, and clear targets for diverse supplier spend. She got to work.

There was one small problem. When Anna asked “what are we spending with diverse suppliers today?” the answer came back “we don’t know.” How can you know how far you have to go to reach your goal if you don’t know where you’re starting?

Anna’s story isn’t unique. Procurement teams increasingly face mandates beyond cost savings. These include Environmental, Social and Governance (ESG) goals, risk reduction, supplier innovation, performance optimization, compliance enforcement, and other complex tasks.

However, they also frequently deal with poor or non-existent tools for understanding their supply base. Even basic questions like “How much of our spend is currently allocated to diverse suppliers?” are hard to answer without a lengthy manual data collection process.

In order to meet these new mandates, Procurement teams need better visibility into the supplier base.

Benefits of improved supplier visibility

Organizations enjoy several benefits from improved supplier visibility:

  • A complete picture of supplier performance and supplier risk. This includes a holistic view of financial stability, ESG factors, country risk, customer churn, and other measures.
  • Alignment between performance, risk and spend. As a result procurement teams make informed recommendations about where to allocate business.
  • Better goal tracking. Teams can take the guesswork out of whether they are meeting their objectives and monitor data in real time.
  • Improved compliance. Breaking down internal silos ensures that compliance enforcement is a global process.

Problems that arise from poor supplier visibility

Conversely, major problems can arise when organizations lack sufficient visibility into their supplier base:

  • Poor visibility into supplier performance: Vendor performance assessments are manual – with intensive Excel and email data collection work – if they’re done at all. As a result, assessments are infrequent, incomplete, ad hoc, or all of the above.
  • Poor visibility into supplier risk: Vendor risk management is reactive rather than proactive. Therefore risk management frequently addresses problems after they happen, and mitigates risks on an ad hoc basis.
  • Decisions driven by intuition rather than data: Because procurement and supply chain teams lack supplier visibility, they’re also working with incomplete data sets. This leads to suboptimal decision making around spend allocation as it relates to performance and spend.
  • Siloed supplier relationship management: Because of the lack of a centralized system or repository for supplier information, procurement and supply chain teams often end up managing supplier relationships in silos. This leads to duplication of effort, inconsistency in approach, and communication breakdowns.
  • Inconsistent or nonexistent supplier compliance tracking: Without visibility into supplier performance and a shared understanding of contract terms, it’s difficult to track whether suppliers are meeting their contractual and regulatory obligations. That puts the organization at risk if critical suppliers are not adequately monitored.

The path to becoming a supplier visibility leader

There are three stages on the path to full supplier visibility, and they don’t all need to be done at once:

  1. Develop a shared source of truth about vendor relationships. This means creating a centralized database of supplier information that can be accessed by the whole Procurement team and key stakeholders outside of Procurement and Supply Chain.
  2. Analyze supplier performance on quantitative and qualitative measures across the organization. This will help identify areas where improvement is needed.
  3. Apply business intelligence to data collected in steps 1 and 2 to visualize supplier performance and risk. Simply stated, data captures what is happening right this second, whereas business intelligence uses historical data to make predictions on future trends and problems. Early detection of issues and trends can help you avoid them becoming troubles later.

Organizations need to have visibility into their suppliers in order to manage them effectively. Without visibility, procurement and supply chain teams will suffer from several critical problems.

Conversely. organizations that improve supplier visibility will be able to make better procurement decisions, improve goal tracking, and ensure compliance. Procurement and Supply Chain teams can no longer afford to suffer from poor visibility into their supplier base.

By taking these steps, organizations can begin to improve their supplier visibility and reap the many benefits that come with it.

Buried Treasure

Bain Gets It: Procurement is an Undiscovered Treasure

II was recently talking with someone who was frustrated that “most of the good articles on procurement strategy in business seem to have been written five to ten years ago.” And right on cue, I came across a piece by some partners at Bain entitled “Unearthing the Hidden Treasure of Procurement.” I strongly recommend that you read the article. It’s not long and you will get a significant return on your invested time. However, if you’re inclined towards bullet points, then you can take advantage of some of the key highlights I’ve identified.

Spend is a Big Issue

The largest single expense category for most firms? External purchasing, which averages a whopping 43% of total costs.

Procurement Savings Potential

Graph from https://www.bain.com/insights/unearthing-hidden-treasure-of-procurement/

Good Procurement Works Wonders

Bain has found the top procurement organizations can reduce an organization’s cost base by 8%-12% on average and then add 2%-3% annual savings on top of that.

Top Companies Buy Better and Spend Better

The two areas that get immediate focus when savings mandates are handed down are improved supplier selection and better price negotiation. Companies multiply their results when they take a step back, however, and rationalize their desired spend before diving into the sourcing process.

Close the Loop on Spending

Procurement manages spending on the category level. Stakeholders in business units manage their budgets across categories. The best companies make sure that category-level savings inform the current year’s budget to ensure that hard-won savings are not ill spent elsewhere.

People, Process, and Tools

Leading organizations have strong capabilities in all these areas: a capable team, running smart processes, empowered by specialized tools.

There’s a ton of great information in this piece and it’s densely packed. So if you were willing to spend the time reading this far, I’ll reiterate my previous suggestion that you read the article in its entirety.

Team: Hands In!

4 Ways to Maximize Engagement with the Procurement Team

Companies with an effective procurement department in place understand just how critical the process is to business.

However, an established system doesn’t guarantee engagement. In fact, according to a Deloitte study, “Internally, engagement across the business remains an area of focus but, for many, a development point.” 

To date, many internal employees try to avoid going through the proper procurement channels. Some key departments feel that going through a standardized procurement system slows down the vendor search and evaluation process. Others think that it adds more bureaucracy to the procurement process, which doesn’t lend value to their work processes.

These reasons underscore the need for procurement professionals to find a way to proactively engage their stakeholders and increase purchasing efficiencies. Here are 4 ways you can do that.

 1. Focus on relationship building

 According to Chief Procurement Officers (CPOs) in a Deloitte study, 74% of CPOs cite “cost savings as the primary driver for performance measurement.” However, while cost savings is a critical driving force for following a systematic procurement process, highlighting another important advantage may prove to be as effective; thereby, helping to build better professional relationships with internal stakeholders.

When companies focus on cost efficiencies alone, it makes the process seem very transactional. Fusing this benefit with other long-term business advantages could provide stakeholders a valued overview of what the procurement department does. 

2. Empower efficiency without forcing policy

Often, established procurement processes are accompanied by new policies that demand employees to comply with the new system.

Instead of pushing for compliance by enforcing the need to comply with set policies, highlight the potential for improved efficiencies. Start by asking employees what they need, understand their challenges, and then present solutions your procurement team can help provide.  

For example, you could highlight how much time automating the procurement process can save for their department, and how your procurement team can assist with writing engaging RFP bids.

3. Make an effort to understand individual department needs

Even with standard processes, there is really no one-size-fits-all approach to efficient procurement. Procurement professionals should understand individual department needs to give them a tailored approach that will be supported by procurement systems your team has put in place.

For example, if you want to engage sales, be sure to reach out to the sales team and gather information about company products and their competition. If you want to learn more about marketing needs, inquire regarding how their department approaches branding and company positioning. For operations, find out what internal processes need additional support.

Knowing more about how your company’s individual departments operate means your procurement team can offer better solutions to their sourcing needs. Ultimately, it helps align your own procurement goals with each department’s objectives.

4. Explore other areas of value

Again, cost reduction may be at the top of every department’s priority list. However, there are other ways that procurement teams can provide value.

For instance, procurement teams are very knowledgeable about market trends. Data gathered from your research could very well be used for more insightful decision making for marketing and sales departments.

Bottom line…

Successful procurement teams with great engagement rates not only use the knowledge of having the necessary processes in place, but they also make sure their stakeholders are using it.

To find out how automating key procurement processes can help boost engagement, schedule a demo of our vendor management services.

Improve your procurement process

4 Ways to Improve Procurement Processes and Boost Organizational Value

Procurement teams…those are the people who find an organization’s suppliers, right? If you’ve adopted this sort of limited view about procurement (or are surrounded by people who have), you’re (or they’re) gravely underestimating the impact of these teams. The procurement planning processes themselves and the people who are responsible for implementing them can affect almost all organizational departments directly or indirectly — which is why its role in any business is critical.

So how can you ensure that your procurement processes boost organizational value for your company? Consider some of the following tips:

1. Review your current procurement process

“But we’ve always done it this way.” It’s a familiar refrain, particularly when an organization has reached a certain level of success. Complacency is not an attribute that should be nurtured, however. Indeed, reviewing processes is a critical first step in streamlining the workflow of your procurement team. Doing so will drive new efficiencies, which will ultimately have a positive impact across your entire organization. But first, you have to be willing to conduct an honest assessment of current processes and protocols.

Not motivated to dive in? Remember: beyond obtaining goods and services, procurement teams are responsible for sifting through — and engaging with — suppliers that could potentially become long-term partners of your business. These partners have to align with the big picture goals of the entire organization and should share the complementary priorities and values. Given the strategic importance of this alignment, you can hopefully use the high-stakes nature of this undertaking to motivate yourself to see if the existing processes support this vision and then amending them if they don’t.

2. Focus on increasing employee skills through training

Continuing the training and development of employees is one of the leading factors that contribute to an organization’s success. Yet, in a survey conducted by Middlesex University Institute, 74% of the research subjects felt that they weren’t able to achieve their full potential in the workplace due to limited development opportunities.

This statistic presents a huge opportunity — one that we’ve empirically witnessed in procurement — in that new technology has been adopted to help employees learn new methods to improve their job performance. So much of our attention is devoted to procurement tools. (And this makes sense because we’re in the business of developing procurement tools!) However, to optimize the value of the tools, procurement professionals should be well equipped to use them. Distance learning, on-demand training, and more have created unprecedented access training.

3. Leverage an eSourcing platform

Leveraging a strategic sourcing template for RFPs, RFIs, and RFQs can give your procurement team more transparency and visibility regarding potential suppliers. It should make it easier for procurement teams to acquire a better understanding of what each supplier can bring to the table; as well as identify specific qualities that will allow them to see if they are a great fit for the organization.

Procurement teams are lauded for their ability to provide cost savings for companies as they source the goods and/or services required by their organizations. However, the goal isn’t necessarily to find the lowest price but to optimize for the highest value, a calculation that undoubtedly includes price. A robust eSourcing platform will help disentangle the qualitative and quantitative data, enabling procurement to select the suppliers that provide the best overall value in light of the selection criteria. The result? Strategic sourcing replaces tactical purchasing.

4. Cultivate good supplier relationships

If your organization is large enough to have a procurement team, then the success of the organization will be significantly impacted by the quality of its suppliers. In addition to maintaining active relationships, procurement teams are expected to have a network of qualified suppliers to which they send out bid requests when the need arises. Granted, you can simply seek out new suppliers when a new project or requirement comes along, but that can take a lot of time and effort. Essentially, doing so will require you to start over from scratch each time. Such delays from the procurement team’s side could cause a domino effect across the whole organization.

Similarly, once the people on a procurement team are engaged with a supplier, it’s incumbent on them to be an active participant in the relationship. Be sure to treat your suppliers fairly and conduct business with the utmost professionalism.

Keep these tips in mind if you want to improve your procurement team’s effectiveness. Remember, it’s not just about saving money or about putting out the current fire. Effective sourcing practices can have a positive chain reaction to your entire organization. So take a long view, tighten your processes, and get set up for success.

Take advantage of Vendorful’s eSourcing platform and find out how we can help improve your business operations. Get in touch with us today.

Improve procurement team performance

5 Ways to Increase Your Procurement Team’s Performance

The role of traditional procurement teams is changing.

By definition, procurement experts are typically responsible for obtaining goods and services based on a company’s needs. However, these days, their role is expanding and they’re also in charge of staying on top of supply market trends and understanding how these can affect the business. Companies rely on them to use their expertise and insight to create new growth strategies and help them remain competitive. Procurement teams are also key players in business expansions with significant supply chain impact.

Given the importance of their role, it’s crucial that companies set their procurement team up to succeed. Here are five ways you can do just that:

  1. Be transparent

Be very clear about what you expect from your employees. This goes a long way towards getting the job done; especially for team members who juggle as many functions in the company as procurement professionals.

Procurement teams should know exactly what the company needs from them to ensure that they are focused on the right priorities. It helps to involve them in major company decisions as early in the process as is feasible so that their daily priorities don’t inadvertently drift too far from the company’s long-term strategic direction –.

  1. Provide constructive feedback

Employees rarely do well working in silos — this is especially true of procurement teams. They’re tasked to coordinate both with internal teams and clients, which means it’s especially critical for them to receive regular feedback from people they interact with.

Providing the team with constructive performance feedback lets them know exactly where they’re at and how well they are doing. It’s also a great way to let them know what areas of the job they can improve on.

  1. Give them incentives

Positive reinforcement is great. Giving your procurement team that extra push through incentive programs is essential to acknowledge that they’ve done a stellar job.

Proactively reward your team for a job well done. Try setting smaller annual goals that procurement teams can work on. Provide incentives when they successfully complete each objective. This will help them feel more accomplished and motivate them towards achieving the bigger, long-term company goals.

  1. Recognize individual expertise

Procurement teams succeed as a group. And within that group, there will be individual team members who will stand out for their specific areas of expertise. For example, one person may enjoy haggling directly with suppliers, while another may loathe it. Identify their particular areas of strength or what specific part of procurement interests them and leverage that as much as possible.

  1. Give them the tools to help get the job done faster

As the job of procurement continues to evolve your team now finds itself intricately involved in multiple aspects of business operations. Think of ways to ensure that they are able to efficiently do their jobs.

One way might be to streamline key aspects of the procurement process, such as writing effective marketing RFPs. eSourcing makes that process more transparent, promotes better adherence to best practices, and saves time for both your team members and your suppliers. Providing the tools to get the job done more efficiently shows your team that you are invested in their success.

If you want to enable eSourcing as a way to increase your procurement team’s performance, find out how Vendorful can help. Contact us today!

Complex Purchase Processes

3 Enterprise Purchases That Use a Complex Procurement Process

Not all procurement processes are equal. That’s because buying a pallet of printing paper is a very different purchase from purchasing a new server network for your entire corporation. In general, the more stakeholders, technical challenges, and moving parts a purchase has, the more complicated it will be. There is an interplay with sourcing and change management, which is important to consider early in the process.

Here are some examples of complex process purchases that are either inherently or consequentially complex.

Challenging Purchase #1- Broad Swath of Stakeholders

Converting your company from Windows to OS X

In some respects, this purchase is not challenging. On the surface, it just means purchasing new hardware — and software, in all likelihood — and onboarding people and systems. Sure, there may need to be some workarounds at the IT level, but those departments make magic on a daily basis. The real issue you are going to encounter is the stakeholders’ reaction. Imagine you have a company with employees with ages ranging from 20 to 70. Some of them may have experienced plug-in switchboards as children while others were exposed to cell phones as toddlers. It stands to reason that the speed at which this diverse group of employees becomes comfortable and productive on the new systems is going to be extremely varied. That’s why it’s critical that change management garners as much attention, if not more, when a company is making a purchase that has this broad an impact. These details need to be discussed and agreed upon well in advance — before the RFP is even created.

Challenging Purchase #2 – Components up the Wazoo

Windmill Turbines

Choose any large manufacturing project: an airplane, a ship, complex electronics — it doesn’t matter. What matters is that all of these projects have a daunting number of varied components for a procurement team to source. Let’s consider windmills. Sure, it’s easy to check the basics off our list. There are the raw materials, the product creation process, and making sure the grid is prepped for the windmill turbines. However, the procurement team also has to make sure there is adequate quality control and that shipping is not only priced competitively, but that it is also extremely timely and reliable. The number of physical components of the actual turbine can make any team’s collective head spin (unfortunately, this does not obviate the need for a windmill), but companies around the world pull this feat off because they understand the absolute necessity of applying rigorous processes to keep their supply chain both financially on target and on schedule.

Challenging Purchase #3 – High-Level Stakeholder Buy-In

Outsourced Redesign of the Coca-Cola Logo

To some creatives, using an RFP as a key part of the selection process in sourcing a creative agency is tantamount to heresy. And perhaps, at first blush, you can see their point. However, it’s worth noting that the odds are good you’ll encounter companies that take the opposite position. In fact, the general structure of an RFP can be a huge help for determining which agency would be right for the job. A significant challenge with this kind of purchase is the amount of interaction the procurement team inevitably has to do with key executives who need to be involved in this large of a decision, a challenge that is exacerbated by the highly subjective nature of much of the analysis. While the procurement team is ultimately responsible for orchestrating the selection process, the stakeholders are going to be charged with much of the assessment. This makes sense and is even a best practice, but it regularly causes a massive pileup of communication with email chains that prompt deep sighs of exasperation.

The lack of an efficient communication method, combined with highly-engaged stakeholders, invariably adds friction to the process. Begin adding up all of the time spent juggling emails, conference calls, and meetings and then multiply it by the pay rates of those who are involved in the process and another question emerges: “Given the effective cost of the selection process alone, are we better off engaging a creative agency or buying a resort for company retreats?”

They Are Possible, But They Are Painful

Teams around the world successfully execute these complex processes, but the majority of them feel the pain of legacy processes. RFP management software is designed to streamline the RFP process with features that directly target and mitigate the challenges that occur at each stage of the sourcing process.

For purchases that include broad swaths of stakeholders, a good RFP library management system has an initial planner.  This collaboration tool ensures — in advance of issuing the RFP — that all of the stakeholders are heard and that requirements, and potential hurdles for adoption, are understood and documented. Stakeholders use the planner to create goals for their RFP so that the entire team is in alignment before the RFP is even created. This feature also helps procurement teams consider potential adoption hurdles as they work to source the best solution.

When dealing with commodity goods, the best price often wins. However, in more complex sourcing events, the variables contemplated in an effort to maximize value are more difficult to disentangle. Indeed, for complicated projects with lengthy lists of requirements, RFP software should have scoring analysis. Scoring analysis lets you see a breakdown of scores by section, subsection, and perhaps even by question. Strategic sourcers know the importance of evaluating total value and that simply tying selection to price is a leading cause of bad outcomes. By drilling down into the details of how suppliers were scored for different evaluation criteria, you will be able to better identify any potential hang-ups or key differentiators.

For stakeholder engagement, RFP management software should have features such as consolidation of informationchatpermissions and in-app Q&A. Email chains and attachments don’t scale. Imagine a data grenade exploding and leaving informational shrapnel scattered throughout your inbox. A good solution brings all of this data together and provides a structured way to access and evaluate it. Chat allows real-time discussions between fellow stakeholders as well as sourcing experts without the need to coordinate a meeting that disrupts everybody’s neatly planned day. Granular permissions allow the procurement team to assign specific roles in accordance with the RFP, e.g. if a certain person has the ability to create questions, approve the final RFP, participate in scoring and more. This allows stakeholders and subject matter experts to know exactly what they are expected to contribute to the sourcing event. In-app Q&A allows vendors, to pose questions that the right person on the purchasing side can address or delegate to a colleague. No more calls and emails… well, way fewer calls and emails!

Vendorful’s RFP management tool has developed all of the features listed above to streamline your RFP process. We created Vendorful because we too have suffered through high-touch sourcing events and know exactly how awful the enterprise purchasing process can be. We would be delighted to show you these features in action. Simply schedule a demo with us.