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4 Key Challenges Facing Procurement

As we begin a new year, there is one thing we can always count on: additional opportunities and unique challenges in the ever-evolving marketplace for supply chain leaders.

What challenges should procurement leaders expect? And more importantly, how can they overcome these challenges to succeed with lofty company goals?

4 Key Challenges Facing Procurement

CHALLENGE 1: Digitization and Technology

Technology is transforming the way in which supply chain leaders are forced to source categories, manage innovation and ultimately manage their supply chain risk. The way in which buyers utilize technology in areas like travel and general supplies has made it more difficult for procurement leaders to create centralized programs and has resulted in a much more fragmented buying environment. On the other hand, automation has also helped create significant efficiencies and visibility to data/trends that otherwise would not have been previously available.

SOLUTION: The right group purchasing organization (GPO) supports the evolution of these technologies and aligns its solutions with the needs of the membership. An advanced GPO will manage the lifecycle of supplier contracts, produce personalized demand management reports to improve buying patterns and arm members with visibility into buying trends to achieve speed to savings.

CHALLENGE 2: Enhanced Market Intelligence

The need for market data and intelligence has never been more important. As markets fluctuate and global pressure forces procurement teams to be proactive in their strategies, there is a critical need for concise and meaningful sources of information. This information may be gathered through the use of internal data management tools or through partnerships with third party consultants and/or GPO’s.

SOLUTION: The more effective procurement teams are at leveraging information, the more prepared they are to negotiate from a position of strength and manage issues that arise. In support of market intelligence, the OMNIA Partners team researches and distributes thought leadership content and insights to members, in addition to hosting regional and a national event to help the entire community connect and collaborate. It is important to arm our members with the tools they need to create competitive advantages in their businesses through best practice sharing and awareness of key issues in the space.

CHALLENGE 3: Improved Stakeholder Alignment

The most advanced organizations don’t achieve 80%+ in spend under management by accident. While C-level mandates and centralized procurement can make compliance a relatively straightforward effort for some, most decentralized organizations don’t enjoy this luxury. Therefore, equipping procurement to drive into other functional areas including HR, IT, Marketing, Facilities, etc. requires guidance and support. Procurement leaders are constantly faced with the pressure of establishing credibility in their company and to be viewed as a partner in the eyes of their stakeholder/end user(s).

SOLUTION: Working directly with a modern, horizontal GPO will allow procurement to tackle this issue head on through the relationships established with category experts across more complex categories, including energy management, contingent staffing, and telecom management to name a few. This collection of resources will advance the visibility of procurement across their internal business units and in turn result in double-digit growth in spend under management for many non-procurement owned categories.

CHALLENGE 4: Improving Efficiencies and Reducing Costs

An agreement should achieve a meaningful level of savings at its inception, particularly if a sourcing event was executed or if significant leverage was applied through use of a GPO. However, as agreements age, the pressure on procurement to find additional savings becomes increasingly difficult. Furthermore, the cost avoidance initiatives, albeit valuable, aren’t typically recognized as “real” savings. Therefore, the natural inclination of the category owner is to execute a competitive bid.

SOLUTION: OMNIA Partners spends a significant amount of time educating members on ways to find value that includes consumption management improvements along with piece price savings. In the distributed goods arena, for example, OMNIA Partners has developed a series of member facing reports designed to find alternate products with the same form, fit, and function, but at a lower price point. OMNIA Partners also identifies low or non-compliant site locations and assists procurement to develop an approach to gain greater spend under management.

Better Align with Your Company’s Broader Strategy

It is critical for supply chain leaders to link their goals to their broader corporate goals. For procurement, we find that the most effective teams will wire their activities into the operational components of the company so that they are viewed as an internal customer serving the goals of the enterprise, not simply a department. For procurement leaders, setting specific, measurable goals that are designed to guide key decisions related to supplier selection, business terms, inventory policy and departmental structure are invaluable. It’s important to note that organizations that have built their supply chain philosophy around cost efficiencies might be vastly different than those who are striving for flexibility and responsiveness. This is best illustrated in the MRO space where procurement teams are challenged to balance the inventory requirements of the production group with the consumption management goals of the broader organization.

Successful teams effectively align internal performance reviews and bonus structures with the targets that have been set. Additionally, they manage supplier performance by aligning the suppliers' incentives with those of the company. If procurement can solve to better align their specific initiatives to that of the broader company, they can tackle the strategic challenges. Additionally, by maximizing the relationship with their GPO partner they will find opportunities for not only quick savings, but more importantly, more strategic, forward-thinking projects that will create sustainable value throughout the year.