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Top 6 Reasons Why Procurement Fails in Many Organizations

February 02, 2015 by Jeremy Kirsten

Weak spot in supply chain

Procurement is not immune to failure. As practitioners, we know that Procurement is a valuable function. However, there are reasons why it fails to achieve the desired results in many organizations.

These are the top six reasons why Procurement's valuable message may not get delivered:

1. Out of control maverick spend 

This is sourcing performed outside of an established agreement, possibly at a greater overall cost. It happens when stakeholders bypass the set sourcing procedures. Sometimes it happens when requisitions are made below a certain value to avoid competitive RFPs. While each individual requisition may not be for much, collectively, they can be worth a substantial amount of money, which may then bypass managerial oversight.

2. Lack of clarity on roles and responsibilities

For argument's sake, I am referring to who is responsible for what tasks or processes. The procurement function's head may be of the opinion that if they own a budget, then they alone can determine how it is spent within the parameters of their deliverables. I won't go into my personal views here, but suffice it to say, Procurement needs to deliver results, and the function needs to be placed, structured and resourced in such a way that that they can go about their business. They should not waste time with repetitive arguments and discussing matters that have already been determined.

3. Procurement manager's inability to deliver results

Let's say this occurs for no other reason than his or her own abilities or lack thereof (i.e. it was not a result of maverick spend or bypassing procedure). This does happen, and I will be the first to admit it. Much is expected of Procurement, and we need to deliver on what we promise. If you say you will do something, do it, and then let others know that you have carried out what you agreed to do.

4. Problems with people, process and/or tools

That is the exact order of importance: people, process, tools. If you haven't hired a strong team, advanced e-solutions won't help you. If your procesees are a mess, e-solutions won't help you, either. Issues with any of these three things can undermine your sourcing strategies.

5. Insufficient risk mitigation for key products or categories

Let's say you are dependent on coal, for example. Imagine for some reason your supply chain is disrupted. This clearly impacts your manufacturing operations. Your supply chain must be reliable, and risks have to be factored into the equation and dealt with accordingly.

6. Lack of business continuity

This one is closely related to my previous point. Imagine a catastrophic event has occurred and impacts product availability for your customers. Why is this part of Procurement and not another function? In many respects, Procurement is the glue that binds a business together – it provides the goods and services needed to help the company make a profit, and it builds relationships with internal and external customers, which consequentially affects the well-being of the entire team.

 

I won't hesitate to admit that Procurement can be practiced incorrectly.

Sometimes it also has its hands tied behind its back by open and passive resistance. Unfortunately, Procurement can very easily turn into a policeman by being quick to jump on and punish those who do not toe the line or who have made a mistake. While I'm not comfortable with this, I know that sometimes tough and uncomfortable decisions must be made, especially when something is not working or hasn't been delivered. In cases like this, we need to be upfront and, yes, own up to the problem. Simply hiding a problem or glossing over it does not make it disappear.

Might some find this view challenging, at least in terms of how Procurement is set up and whether or not it is found to deliver. I hope so. I hope this conversation becomes a catalyst for improvement. Before firing the flaming arrows, I ask you to think about what I have said. Good managers and leaders set themselves apart by turning poor decisions into learning experiences that can then be used to drive value.

I know procurement and supply professionals are motivated and committed to improving the profession and increasing the benefits to their organization. Indeed, they are the glue that holds together so many facets of the organization. This can be seen across the length and breadth of the decisions make on a daily basis.

As the saying goes, “When the going gets tough, the tough get going.” Procurement is not for the faint of heart, especially when events in the macro environment start affecting your organization and its ability to thrive. Man, I love this job! 

 

Download the Strategic Sourcing Guide

 

Jeremy Kirsten

Written by Jeremy Kirsten

A highly experienced, passionate & proactive Procurement & Supply Chain Manager, Project Manager, Consultant and Change Manager - I would be delighted to enter into dialogue with Procurement & Supply professionals on like matter.

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