Procurement faces a dynamic landscape marked by diverse, multifaceted challenges impacting strategy, operations, and long-term goals. Rising complexities of global markets, technological evolution, sustainability, and evolving customer expectations make understanding and mastering these challenges crucial for success.

In this blog, we examine 5 major challenges of modern procurement, their impacts on businesses, and top-line practices to address them effectively.

Supply chain disruption

75% of companies have reported supply chain disruptions during and after the COVID-19 pandemic due to evolving consumer behaviour, volatile markets, and shifting supply chains. Supply chain leaders must devise agile, resilient responses to general challenges such as:

  • Lack of global resilience
  • Rising operational costs
  • Sustainability concerns
  • Talent and skill gaps
  • Inflexible IT, data, and analytics

Accelerated response capabilities and optimized supply chain planning are needed to establish resilience and adaptability in the face of instability. Actions to take include:

  • Enhance supply chain planning with digital adoption, operating model reform, and agile networks
  • Deploy data-driven technologies to enable real-time adaptations to evolving conditions
  • Foster flexible value chains, tech-driven risk management, and end-to-end transparency

Regulatory challenges

Procurement faces a complex landscape of regulatory challenges that impacts every aspect of the supply chain. According to the World Economic Forum, global trade compliance costs equate to a tariff of 2-3% on total world trade. Emerging challenges include:

  • Navigating labyrinth of international regulations and tariffs to enforce global trade compliance
  • Adhering to data protection laws like the European Union’s GDPR to safeguard sensitive information in procurement processes
  • Operating within sustainability regulations to meet stakeholder expectations
  • Ensuring ethical labor practices and supply chain transparency aligned with regulations to combat exploitation
  • Complying with industry-specific quality and safety standards, such as ISO certifications, to maintain product integrity

Regulatory challenges can significantly increase process complexity, costs, and risks. Non-compliance presents its own dangers, with negative consequences such as:

  • Financial and operational penalties
  • Reputational damage
  • Further disruptions in the supply chain

Enforcing compliance effectively requires robust compliance strategies, comprehensive due diligence, and continuous monitoring to ensure constant adherence to evolving regulations. Identify opportunities to augment compliance enforcement with digital tool and technology adoption.

Cost management and savings

Cost management and savings are central to procurement success, and demand strategic approaches to optimize budgets and drive efficiencies.

The key challenge for businesses is to optimize spending while maintaining supply chain resilience and sustainability. Specific tasks include:

  • Balancing operational expense optimization with maintaining quality and performance
  • Navigating fluctuating supplier prices and negotiation pressures
  • Adapting to volatile economic, geopolitical, and market factors affecting pricing and procurement strategies
  • Implementing eco-friendly sourcing and practices efficiently to minimize costs and meet sustainability targets
  • Allocating procurement budgets and other limited resources efficiently

The following actions can improve process oversight, decision speed, and productivity to alleviate operational costs:

  • Embrace digital tools to ramp up productivity
  • Enable strategic sourcing with data-based decision-making
  • Forecast demand accurately with data-driven tools
  • Detailed supplier collaborations

Data security and privacy

Data security and privacy have become paramount procurement concerns, as digital technologies and their security needs become central to business operations. Major security challenges include:

  • Ensuring supplier confidentiality
  • Regulating the use of Personal Identifiable Information (PII)
  • Cybersecurity threats targeting data-driven tools and processes
  • Managing data residency regulations on capture, storage, analysis
  • Securing third-party providers and environments with unique security challenges (e.g. cloud)

Sub-optimal data security can lead to data breaches, reputational damage, and costly litigation. Take proactive measures in the following areas to improve data protection:

  • Implement stronger layered data encryption
  • Map and optimize access points and controls
  • Institute regular security audits and compliance checks
  • Educate the workforce with security best practices

Supplier relationships and performance management

65% of procurement leaders have limited or no visibility beyond their Tier 1 suppliers. But deep and transparent oversight of supplier relationships and performance management are critical components of reliable, effective procurement.

Priority improvements and practices span 4 core imperatives:

  • Maximize value by:
    • Focusing practices on hard dollars savings and cost avoidance
    • Reviewing contract terms to negotiate consistent pricing
    • Expanding FTE bandwidth
    • Leveraging economies of scale with multi-deal negotiations
    • Standardizing technology platforms and tools
  • Mitigate risk by:
    • Evaluating provider financial viability
    • Surveying providers for solution comparisons
    • Implementing rogue spend control
    • Enforcing strict contract adherence
    • Introducing security solutions against data loss
  • Enhance relationships with:
    • Portfolio rationalization and detailed segmentation
    • Collaborations to innovate and enhance products
    • Partnership optimization assessments
    • Acquisition of scarce resources
    • Flexible contracts
  • Drive performance with:
    • Well-defined SLAs and KPIs
    • Governance oversight and analytics reporting
    • Regular and frequent provider audits
    • A transparent single point of contact (SPOC)
    • Stringent product quality and approval controls

Increasingly complex and interconnected procurement challenges demand cohesive, detailed approaches to optimize processes for sustained volatility. Expert advisory is recommended to address the scale of changes effectively and efficiently.

Contact a Wavestone expert for bespoke guidanceon formulating a procurement strategy to meet your business needs.

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