Procurement Strategies for Risk Mitigation

Efficient procurement is a vital component that contributes to business growth. However, as with any other business process, it is also prone to certain risks. The key here is to have optimal risk mitigation strategies set in place to avoid unpleasant surprises. 

Throughout this article, we will review common risks and challenges faced in the procurement process and provide efficient risk mitigation solutions. So, if you are ready, let’s start! 

Why Managing Procurement Risks is Important? 

Managing procurement risks is important for several reasons. For instance, with a good risk management strategy set in place, you’ll be able to have more cost savings and generate added value. 

Every transaction involves certain risks ranging anywhere from vendor reliability to the company’s reputation. Without a proper procurement process, which also has risk mitigation strategies, your supply chain management will become very chaotic. 

So, in order to avoid the negative consequences of a chaotic process, it is better to have risk mitigation strategies in place. 

Common Challenges with the Procurement Process

There are lots of challenges faced during the procurement process. These challenges range from spend analysis to inefficient supply chain management. 

So, let’s review common challenges with the procurement process in more detail in order to understand their causes and consequences. 

Inadequate Budget Planning and Spend Analysis 

With the rising inflation, more and more challenges arise when it comes to the cost of raw materials, delivery risks, and supply chain disruptions. Inadequate budget planning is one of the main reasons potentially causing supply chain disruptions or unexpected expenses for the business. 

It is important to adequately analyze your business needs, taking into account factors such as inflation and market changes. You must clearly know what, when, and who will deliver your materials to ensure smooth supply chain management. 

It is difficult to create and stick to the budgets. However, if you have proper planning strategies and analyze spending patterns, you can develop an adequate budget plan that works. 

Contract Management Inefficiencies 

Many businesses lack good contract management, which, in the long run, causes disruptions in supply chain management and results in low-quality relationships with suppliers. 

The main goal is to get the best price and quality, but inefficient contract management results in delayed payments, deliveries, and so on. The manual process involved with contract management decreases team productivity and causes more errors, posing significant risks for the businesses. 

No business wants to face inefficient contract management consequences, but it is a common challenge businesses deal with in the procurement process. Thus, there is a need to address the challenge of using adequate technology to keep track of contract management. 

Fraud and Data Loss 

Another huge risk businesses have to deal with is fraud and data loss. This is especially relevant when procurement processes are conducted manually and do not have digital databases in which to store the documents. 

First of all, the manual process increases the chances of data loss due to the absence of appropriate technology to store the data and access it anytime. Secondly, fraud commitment is easier when the procurement process is paper-based as the transparency levels decrease. For instance, suppliers can change the cost, and the procurement team can approve it without verifying, which results in higher business spending. 

Inaccurate Data 

Inaccurate data is yet another challenge that causes serious consequences for the business. Many procurement teams manage data entry manually, which already makes the data entry more prone to risks. 

Besides, teams manage data via spreadsheets that do not offer any analytics capabilities. Whenever data needs to be accessed, finding or identifying the accuracy levels becomes harder. This leads to poor decision-making. 

Inefficient Communication 

The absence of proper communication and collaboration can cause significant inefficiency within the procurement process. Procurement teams highly depend on finance teams. So, without proper internal communication tools, businesses will have to deal with decreased productivity and inefficiency. 

For instance, your procurement team is unaware of the anticipated demand for X products in the future. So, they order the usual amount of products from the suppliers. However, increased demand results in an inventory shortage, which can cause a struggle for your company’s reputation. Even if the finance team manages to communicate that there will be more anticipated demand if the PO is already placed and processes are manual, it still will require lots of time to reach the supplier, change the terms of the contract (amount of items to be delivered and cost) and so on.

Procurement Risk Mitigation Strategies

Well, it is time to dive into the practical part of this guide. Here, we’ll review the most efficient risk mitigation strategies to manage your procurement process successfully. 

Incorporate Spend Analysis 

The first mitigation strategy you must incorporate into your procurement process is spend analysis. Returning to the common challenge businesses face, which is “inadequate budget planning,” here is a solution - spend analysis. When you are aware of your business’s spending patterns, it becomes easier to cut back and manage expenses efficiently. 

To ensure quality and accurate spend analysis data, incorporate procurement software with robust analytics features. 

Enhance Transparency

The next risk mitigation strategy you should incorporate within your procurement process is  enhanced transparency. For instance, if you use software that allows you to track every step of the process when it comes to workflows, POs, and contracts, it will help you stay ahead of potential risks and take timely actions to avoid any disruptions. 

Improve Supplier Relationship Management 

If you manage procurement processes to always pay on time while also collaborating with your vendors, it will help you establish trustworthy and long-term relationships. 

Improving supplier relationship management will help you avoid supply chain disruptions in case any risks arise regarding overdue payments due to inflation or other factors. If your relationships with the vendors are bad, then you cannot rely on their help or readiness to collaborate in case of emergencies. 

Enhanced Collaboration 

To mitigate risks caused by a lack of internal communication within teams and external communication with suppliers, there is a need to encourage a collaborative environment. 

Collaboration can be hard to achieve via traditional communication channels such as emails. It will be far easier with appropriate collaboration tools that allow real-time collaboration and instant messaging capabilities. 

Incorporate Technology   

Finally, to improve risk management while reducing the overall potential of risks and emergencies, you can incorporate technology to optimize your procurement process. We have talked about how software solutions will help you to manage different processes efficiently.

How to Choose a Procurement Software? 

It is always better to avoid damage instead of implementing solutions to get over the damage done. So, if you want a secure procurement process, it is important to choose high-quality procurement software. 

Let’s overview the main factors to consider when choosing procurement software. 

Ease of Use 

When choosing software to optimize your procurement process, make sure it has a good user interface. Good UI will allow you and your team to quickly navigate through it and efficiently set up different processes. 

Customization 

High-quality procurement software must offer sufficient customization options. 

Every business has different procurement processes and workflows set in place. Thus, it is important to make sure that the software of your choice offers enough flexibility and customization. 

Customization options will allow you to set up workflows and other processes that meet the unique needs of your business. Naturally, it will improve the overall efficiency and help your business achieve its goals. 

Automation 

Effective risk mitigation requires robust automation to reduce errors that occur from manual processes. So, make sure the software solution you choose comes in handy with automation features. 

Automation will help you with invoice management, approval workflows, 3-way matching and save lots of time for your procurement team. 

Security 

Also, do not forget to check whether or not the software solution you plan to implement offers enough security. Data protection is crucial in today’s digital era. Thus, pick software that is compliant with international security standards and follows required protocols when it comes to data privacy. 

Integrations 

Make sure the software of your choice integrates with other tools. Integrations with third-party tools will help you avoid manual data entry/changes on both software products and instead allow for real-time data synchronization. 

Mitigate Risks with Tradogram 

If you are looking for an all-in-one procurement software that will allow you to manage risks efficiently, then Tradogram is the perfect solution. 

Our cloud-based solution offers a variety of features designed to enhance procurement processes within your organization. We care about your safety and privacy, so we implement effective security protocols. 

Tradogram’s features range from workflow automation to 3-way matching, invoice processing, spend analysis, and inventory management features. It offers all the necessary tools to mitigate risks and effectively manage the procurement process.