DIY Issues with Procurement – Video Explanation
Procurement. Strategic Sourcing. Purchasing. Category Management. All of these terms, may seem simple enough at their core, but there is a lot more to the strategy than you think.
I’ll agree it’s not rocket science, but some parts aren’t intuitive either. That’s why having a DIY Procurement Strategy can lead to epic fails and disasters. Here is a summary of the video’s nine issues and their explanation.
1. Missed deadlines, delays, inventory issues and more.
One of the most important part of Category Management includes what we call “Assurance of Supply.” In basic terms, it means you get what you need, when you need it. For example if it’s tangible or a product, it’s on time delivery without the item going out of stock.
With services, it’s making sure the team hits their goals and milestones on-time and without significant delays. All of which can be done with the use of KPIs/SLAs as business terms in contracts. Without them, you run the risk of not only these issues, but no financial recourse.
2. Legal red tape, PO rejections and other company mandated requirements.
In most organizations, if you don’t go through sourcing for your purchase, they have the ability to stall or reject your PO as a point of approval. Even when you go for internal management’s approval, having the ability to say you worked with sourcing can make the process go a lot smoother.
3. Poor business terms that guarantee exclusivity, spend or multi-year agreements.
I’m not saying anything things are bad outright if they are agreed upon; but, if done in a malicious way (i.e. sneaking them in) you can end up in a world of hurt. Especially if you don’t have any performance metrics to ensure quality/service levels or termination for convenience clauses.
There are lots of business terms that legal may not have insight too, and why it’s always preferable to include sourcing who are the experts in this field. The last thing you want to do is get stuck in a long term deal with no recourse.
4. Suppliers going bankrupt during a project.
Financial due diligence is key when assessing a supplier’s viability. If they’ve got debt up to their eyeballs with little cash flow, you can guarantee they are headed for a rough time ahead.
Strategic sourcing helps to assure their financial stability and going concern. Without it, you may be up a creek without a paddle at in inopportune time.
5. Overpaying, bad negotiated rates and missing out on global discounts and rebates.
If you don’t have benchmarks on pricing, how do you know you got a good or bad deal? Guess what, you don’t! And what if there are industry standard discounts and rebates that you are unaware of, and the supplier isn’t keen to offer up?
Again, this is where procurement or sourcing can provide valuable information and data for your decision making process.
6. Missing out on new and innovative products and services.
Part of what we do is provide benchmark information on the industry, including new suppliers, innovations and products. Without this information, you’ll end up defaulting to who you know or what’s worked in the past, which isn’t always the right answer!
7. Missing out on cross-company synergies.
Sourcing has the ability to see spend for any type of category across the entire globe. It’s similar to certain finance consolidation roles. And for this reason, we’re able to bundle spend and work out additional rebates, discounts and more.
Not to mention, it give us the ability to see if someone else has already bought the data set, or license. There’s nothing companies love more than selling you the same thing twice!
8. No longer can you blame it on procurement!
There are a lot of things were are happy to do, and one is take the blame when it comes to negotiations. It’s an easy way for you to be able to maintain your relationship, and have a third party to either blame or take over.
9. You’ll miss out in hanging out with the cool kids.
I think this one speaks for itself. We’re always ready to help or lend a hand when needed. We like to view ourselves as a consultant. If that’s not cool, I’m not sure what is!