Shopping without stress

What situations can management determine that it is time for the company to automate purchasing activities?

Any organization, regardless of its scale and specifics of activity, makes purchases: from office supplies to components for complex production. How to understand that purchasing activities are organized effectively? Purchasing specialists themselves usually rely on three criteria: cost, that is, the ability to save the company's money, compliance with delivery dates and satisfaction of internal business customers. It is important for auditors to understand the criteria for selecting suppliers. For company management, the main thing is that purchases are carried out as transparently as possible and in accordance with legal requirements.

If business processes are not automated, then, especially with large volumes, it is difficult to assess the effectiveness of procurement activities. You have to go into micromanagement: find out the reasons, analyze each individual case and look for solutions. In this article, Galina Zubareva, Business Development Manager at K2Tech, will analyze the red flags that indicate the need to automate procurement.

1. Lack of a single pool of verified suppliers

When a company does not have its own automated procurement system, employees can use an external electronic trading platform or create a list of suppliers for each application manually. Working with external electronic trading platforms has its pitfalls: for example, the price factor can be decisive in choosing a supplier. With a large volume of nomenclature, it is physically impossible to write a detailed technical specification for each element: be it spare parts for agricultural machinery or green peas, which vary in color, size, shape and taste. A random supplier can offer a more convenient price, but the quality of the material will not meet the required level, or the goods will be counterfeit or illegally imported into the country. Working with a new counterparty is a lengthy process of checks, agreement of contracts and an undesirable increase in delivery time. If the buyer searches for suppliers manually, limiting himself to the results of the first pages of search results instead of full sourcing and analysis of proposals, this can increase the cost of the purchase by an average of 25%.

Purchasing specialists who work in the internal automated system have the opportunity not only to process a larger number of suppliers per unit of time, but also to work with a pool of verified suppliers for each product group: access the archive of commercial offers and counterparty checks, leave comments on working with them, and compile a supplier rating, including for individual product positions.

2. An attempt by a supplier to play on personal interests

It happens that unscrupulous suppliers try to contact directly the employees responsible for procurement and offer a “discount” for the company. If an employee agrees, for example, to 5% of each conditional order for sanitary and hygienic products, then with a total purchase volume of 7 billion per year, such “cooperation” can cost up to 350 million. In this case, the responsibility for working with an unscrupulous counterparty will fall entirely on the organization. Interaction with suppliers through the procurement system helps to avoid such situations: suppliers try to offer the most favorable conditions for the company in order to meet the company's requirements, which are the same for all participants and clearly recorded. In addition, the presence of an archive of all suppliers and their proposals can serve as a significant help for purchasers during negotiations.

3. Lack of ability to work with applications in a single window mode

If procurement communications are conducted via email, sooner or later the long chain of information transfer will fail. The difficulty is that the content of a request sent via email is checked not at the time of sending, but after it is received by a procurement specialist. In such a scenario of working with requests, you may not receive significant information if the internal customer does not fill in all the required fields, without specifying the dates, quantities or other requirements. For example, at an enterprise, internal customers sent requests for the purchase of consumables and replacement of components for production machines via email. One day, the purchasers received two identical requests, one of which did not specify the deadlines. The specialists, focusing on similar specifics, combined the needs and made an order with the same delivery date. Later it turned out that the same request without specified deadlines needed the spare parts earlier. As a result, production stopped until the necessary parts were received, and the enterprise almost lost one of its key clients. Such situations bring the company not only financial losses, but also significant reputational damage.

4. Lack of a system for distributing applications between employees

When applications are received in a company through a common mailbox, from where procurement specialists sort them into their categories, it is difficult to track their execution. Before a business trip to China, a top manager of a manufacturing company instructed to purchase business souvenirs for strategic partners. The country's traditions suggest mutual business gifts during negotiations as a sign of respect and interest in further development of cooperation. However, none of the purchasers processed the application, relying on colleagues, and the head of the department was on vacation and did not monitor the execution of the task from the internal business customer. As a result, the gifts were not purchased in time. For a company, such mistakes at the level of organizing procurement activities can cost multimillion-dollar contracts and the opportunity to enter a new market.

5. Lack of continuity and transparent employee training processes

If procurement standards and regulations are created during the company's formation period and are not revised as the business scales, they will stop working over time. One large company turned to external auditors to identify growth potential. The audit showed that as the volume of tasks increased, purchasers deviated from the prescribed standards in order to complete tasks on time. New employees were trained in practice, where each purchaser worked in his own way. Newcomers spent a lot of time and effort to master disparate approaches and reach average productivity. As a solution, the company proposed updating the regulations and securing them as mandatory processes in the automated system. Employees were given the opportunity to study reference books and access the procurement archive with a clearly traceable sequence of actions. The period from the moment a newcomer starts to the first independent purchase was reduced by 2.5 times, and overall employee satisfaction increased.

If you recognized your company in at least one of the cases, it’s time to seriously think about automating interactions with suppliers based on an SRM solution. Share in the comments what difficulties arise in your company? What barriers do you encounter when trying to convince management to invest in software for purchasing automation?