Common Supplier Frustrations in Procurement
In 2022, CPOs are facing many challenges. We list the Top 3 as we see it.
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The Largest Problems Every CPO Has In 2022
In 2022, CPOs are facing many challenges. We list the Top 3 as we see it.
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:
- 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.
- Analyze supplier performance on quantitative and qualitative measures across the organization. This will help identify areas where improvement is needed.
- 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.
Vendor Risk: Can Procurement Manage a Way Out of It?
Employers of any size all around the world and in every industry have one thing in common: they must, by necessity, rely heavily on vendors as a vital component of their business operations. In fact, many organizations have more vendors than they do employees. Unfortunately, said reliance on these third-party relationships and on the activities of a vendor can leave businesses open to various hazards in categories called risk management domains: operational, financial; technical; regulatory compliance; reputational; and information security and privacy.
By employing effective vendor risk management, a business actively engages with its third-party vendors to ensure that the vendors’ operations, actions or inactions do not cause disruption to the business’s operations or otherwise have an undesirable effect on performance. Vendor risk management also keeps a business from getting hit with hefty fines or penalties for regulatory noncompliance or witnessing damage to the company’s reputation or brand — all because of something one of its vendors did (or didn’t do). And the group that’s increasingly becoming responsible for performing the critical task of vendor risk management? The Procurement department.
A Bigger Job to Do
Traditionally, Procurement’s primary role was to handle vendor selection, sourcing and negotiating best value/pricing on goods and services and finalizing vendor contracts. Performed optimally, this role alone contributes undeniable strategic value to the business. Today Procurement does far more heavy lifting because its core functions make it uniquely equipped to proactively identify and mitigate the myriad risks that third-party vendors present.
Why the Need for a More Proactive Approach
The business environment continues to move faster, smarter, with more organizational interdependencies. Vendor networks are evolving from simple supply chains into complex value chains, growing almost exponentially in size and technical intricacy. Businesses rely heavily on their third-party vendors to cost-effectively fulfill their portion of the process, and thus must be capable of forecasting, overseeing and responding with agility should the slightest delay or deviation in the vendor’s actions be observed. Further, regardless of what functions are outsourced to vendors, compliance with all local, state and federal regulations remains the responsibility of the business.
The Damage Can Add Up
Failing to recognize the danger of vendor risk can cost a company dearly. Last year alone, a U.S. health insurer paid $2.09 billion in criminal penalties to the Department of Justice and $8.8 million to the Securities and Exchange Commission after one of its foreign vendors ran afoul of the Foreign Corrupt Practices Act. A major utility company reported a vendor had released the personally identifiable information of nearly 300,000 employees, and a bank reported a data spill at a vendor’s location exposed nearly two million current and former customers’ personal information. Data breaches like these cost a U.S. company an average of $8.1 million, with the intangible costs of reputational damage much harder to estimate.
Yes, They Can!
Procurement is well-positioned to take the lead on vendor risk management because, frankly, it’s already doing much of the job. Consider that the core functions in modern procurement operations are divided into six accountability areas that represent the supplier lifecycle from start to end:
- Strategic Sourcing
- Contracts Management
- Procurement Processes
- Invoicing and Payments
- Supplier Management
- Spend Analytics
Coincidentally, each of these six areas is essential to managing vendor risk. Thus, by monitoring the areas for which it traditionally is responsible (e.g., Sourcing, Contracts, Procurement, Invoicing) and extending its reach to include the other areas of accountability means Procurement can provide vendor risk management at the enterprise level — in particular, identify perceived operational, financial or information security risks and ensure that any fast-breaking regulatory and compliance matters are addressed to avoid any risks of that nature.
Just as the proliferation of technology is a major contributor to vendor risk, so does it figure prominently in providing a solution to manage it. Third-party cloud-based risk platforms are available that can connect a host of flexible tools with the eProcurement platforms and accounts payable system that the Procurement Department already uses, elevating the system’s scope and reach to bring immediate visibility, transparency, order, and application of best practices into every cross-functional transaction underway. The best of these platforms are robust and scalable, offering:
- Seamless, easy integration with the company’s existing eProcurement system(s)
- An instinctive, approachable UX
- Efficient automated workflows and risk management processes
- Tailoring for unique industry needs
- Industry compliance and regulatory requirements as they develop
- Scannable reporting capabilities
- Freely shareable dashboards for real-time, aligned collaboration
- Risk domains and assessment forms that can be tailored to the needs of the business
- Comprehensive customer service throughout the vendor lifecycle
Personal Relationships Are Key to Success
To monitor supply chain health, Procurement can further enhance the risk management process by once again doing what it already does: cultivating great relationships with vendors. These are people they talk to often to discuss terms and resolve issues so they’ve proven they’re up to the task. Work strategically, focusing first on top-tier and most-at-risk vendors within the risk management domains yet assess the entire group, as even vendors deemed lower-tier can have an outsize impact on a business should they trigger data breach or bribery claims.
There’s a great deal of upside to increasing the breadth of a business’s Procurement operations to include leveraging a cloud-based procurement platform to meld with the company’s P2P system and utilize both, along with personal relationships, to eliminate or minimize the myriad risks inherent with vendor relationships before they can negatively affect the business. At the same time, the wealth of key data and process improvements that are realized will help an employer streamline and optimize daily operations to face the competition with a distinct advantage.
Sources: Digitalguardian.com, Managing Vendor Risk (The Shelby Group)
Quiz: Are Your Sourcing Methods as Effective as You Think?
If your procurement team is like the ones we usually encounter, then it’s a given that you would like to accomplish your work in the most efficient way possible. So, when traditional sourcing methods deliver the results you need, it’s natural that you stick with them.
However, staying competitive and keeping up with the rapid changes in the business world requires you to take a more forward-thinking approach. Technology means you now have the option do things faster and better. For example, eSourcing platforms help expand your reach as you search for new suppliers or product sources, and can do so at a more competitive cost. With a solutions landscape that has evolved considerably in recent years, there’s no better time than now to reevaluate whether your current sourcing methods are as effective as you think. (And if you are part of the aforementioned procurement teams that we encounter, you’re undoubtedly in the midst of this reevaluation process.)
To assess what you can do to improve your processes, take this brief quiz below. Read through the questions and give yourself a point for each YES answer.
- My team and I use a lot of documents, emails, and spreadsheets to manage our sourcing and procurement methods efficiently.
- The lack of visibility and transparency in traditional procurement methods means I have to spend more time managing and monitoring bids and proposals than doing productive work.
- I tend to spend a lot of time coordinating between suppliers and internal stakeholders to ensure everyone is in the loop.
- The prospect of sourcing new products or suppliers feels tedious and daunting, and usually costs a lot of money.
- It takes us a lot of time to prepare a proposal to send out to prospective bidders.
- It regularly takes our team weeks, or even months, to find the right supplier that meets our stakeholders’ requirements.
- Our suppliers tend to feel that we’re pitting them against each other, which creates tension in the relationship.
- Our relationships with our network of suppliers can be strained, especially when we are trying to get the best price for our requirements.
- Our team finds it difficult to find new suppliers to participate in the sourcing process.
- Objectively speaking, our team finds that our current processes can definitely be improved to be faster, more transparent, and cost efficient.
Now, add up the number of times you answered YES to the above questions.
If you totaled 3-5:
Reevaluate your current processes. Your methods may be effective at the moment, but there could be room for improvement. At the rate businesses are evolving, you might find it harder to keep up with the demands of clients and suppliers down the line. At this point, it would be very helpful to find new ways to keep your procurement team focused and motivated—whether through additional coaching, training or by introducing new tools to help them improve current practices.
If you added up 5 or more:
You clearly need to find a new approach to ensure that your company maintains efficiency and efficacy in spite of apparent sourcing challenges. You might consider leveraging sourcing tools that can offer transparency, streamline communication, improve sourcing practices, and manage supplier relationships all in a single eSourcing platform.
Take advantage of Vendorful’s eSourcing and vendor management platform and find out how you can use it to improve your sourcing methods. Contact us today.
3 Ways Feedback Can Improve Vendor Relationships
For any organization, ensuring that your vendors are able to meet your requirements and expectations is critical. However, this is not just a matter of choosing partners and then passively waiting for them to delight or disappoint: how you manage your vendor relationships can have a major influence on whether they succeed or fail.
One action customers can take to improve vendor performance is to consistently collect feedback from internal stakeholders. This proactive approach increases visibility into your vendor’s performance throughout the contract lifecycle, and ultimately enhances the business relationship.
Let’s delve into the nitty-gritty details of how feedback can improve vendor relationships with the explore the top 3 reasons to keep your lines of communication open.
- It helps clarify expectations between yourself and vendors
A study published in the Washington Post states that frequent feedback can help boost employee performance by as much as 12 percent. Why? A manager who is able to clarify his/her expectations to employees reduces the risk of miscommunication.
The same can be applied to vendors. Although you have a contract that may cover the basic service terms, it can leave a lot of room for confusion given the fast-paced nature of conducting business. Regularly scheduled performance evaluations can help to align expectations and ensure that operational and performance issues are addressed.
- It facilitates proactive performance management
According to a study conducted by the Harvard Business Review, “negative (redirecting) feedback, if delivered appropriately, is effective at improving performance.”
In the context of procurement, it’s typical for companies to provide performance surveys at the end of a contract. However, while useful for future reference, the retrospective nature of such an inquiry means that vendors are unable to address and possibly correct deficiencies as they arise, particularly if they are not specifically articulated. With regular periodic feedback, vendors can proactively address performance failures, thereby improving their operations in real time.
Doing otherwise could be a missed opportunity to strengthen your vendor relationships.
- It gives companies a chance to recognize good performance
Feedback need not be negative: buyers can certainly provide positive reinforcement as well. In general, people are more willing to go the extra mile if their efforts are recognized. It’s a great motivational tool.
However, it’s difficult to acknowledge a job well done if you are unable to pinpoint the reasons a particular operational flow is successful or showing marked improvement. If you wait to long to analyze and recognize successful outcomes, the key stakeholders might forget important context. Collecting feedback in the midst of an engagement allows buyers to accurately document strong performance and recognize it.
Good vendor relationships – with a strong focus on vendor performance – foster smooth operations, and promote relationship growth and longevity. Consistent feedback is one of the best ways you can facilitate such relationships. Intermittent feedback is better than no feedback, but a frequent, open, constructive dialogue – supported by stakeholder data – is best of all.
Technology has proven itself to be a game changer for many industries. Therefore, it’s no surprise that it has made a significant impact even in the very niche aspects of business operations, like vendor management. Platforms like Vendorful can make this process easy, painless and automatic. (And if you can think of ways to gather insightful feedback from your vendors, tell us about it below!)
For a comprehensive explanation on how to improve vendor relationships, get in touch with us today.
For any organization, ensuring that your vendors are able to meet your requirements and expectations is critical. However, this is not just a matter of choosing partners and then passively waiting for them to delight or disappoint: how you manage your vendor relationships can have a major influence on whether they succeed or fail.
One action customers can take to improve vendor performance is to consistently collect feedback from internal stakeholders. This proactive approach increases visibility into your vendor’s performance throughout the contract lifecycle, and ultimately enhances the business relationship.
Let’s delve into the nitty-gritty details of how feedback can improve vendor relationships with the explore the top 3 reasons to keep your lines of communication open.
- It helps clarify expectations between yourself and vendors
A study published in the Washington Post states that frequent feedback can help boost employee performance by as much as 12 percent. Why? A manager who is able to clarify his/her expectations to employees reduces the risk of miscommunication.
The same can be applied to vendors. Although you have a contract that may cover the basic service terms, it can leave a lot of room for confusion given the fast-paced nature of conducting business. Regularly scheduled performance evaluations can help to align expectations and ensure that operational and performance issues are addressed.
- It facilitates proactive performance management
According to a study conducted by the Harvard Business Review, “negative (redirecting) feedback, if delivered appropriately, is effective at improving performance.”
In the context of procurement, it’s typical for companies to provide performance surveys at the end of a contract. However, while useful for future reference, the retrospective nature of such an inquiry means that vendors are unable to address and possibly correct deficiencies as they arise, particularly if they are not specifically articulated. With regular periodic feedback, vendors can proactively address performance failures, thereby improving their operations in real time.
Doing otherwise could be a missed opportunity to strengthen your vendor relationships.
- It gives companies a chance to recognize good performance
Feedback need not be negative: buyers can certainly provide positive reinforcement as well. In general, people are more willing to go the extra mile if their efforts are recognized. It’s a great motivational tool.
However, it’s difficult to acknowledge a job well done if you are unable to pinpoint the reasons a particular operational flow is successful or showing marked improvement. If you wait to long to analyze and recognize successful outcomes, the key stakeholders might forget important context. Collecting feedback in the midst of an engagement allows buyers to accurately document strong performance and recognize it.
Good vendor relationships – with a strong focus on vendor performance – foster smooth operations, and promote relationship growth and longevity. Consistent feedback is one of the best ways you can facilitate such relationships. Intermittent feedback is better than no feedback, but a frequent, open, constructive dialogue – supported by stakeholder data – is best of all.
Technology has proven itself to be a game changer for many industries. Therefore, it’s no surprise that it has made a significant impact even in the very niche aspects of business operations, like vendor management. Platforms like Vendorful can make this process easy, painless and automatic. (And if you can think of ways to gather insightful feedback from your vendors, tell us about it below!)
For a comprehensive explanation on how Vendorful can help a company improve their vendor and customer relations, get in touch with us today.