Top 11 Procurement Challenges and How To Overcome Them in 2024

If you ask a procurement professional about their work life— they’ll offer a view into their chaotic world. Procurement managers are always balancing several priorities at once.?

On the one hand, they have pressure from various internal stakeholders to procure materials and onboard vendors to ensure timely quality supplies and services.?

Then, there is the added pressure of ensuring that all the procurement happens within stringent budgets. The procurement function is also marred with supply chain challenges, including getting reasonable rates, quality supplies, and timely vendor payments.

Why are procurement professionals facing challenges? What are the most common procurement challenges? How will technology help solve procurement challenges?

We examine these areas in detail in this blog post, along with solutions to streamline supply chain management and the procurement process .

Understanding Procurement Challenges

Before we get to the key challenges plaguing procurement teams, let’s analyze why the procurement function faces challenges.

The procurement department was seen as an administrative function of business, ensuring the availability of quality materials at the right time. However, since the 2000s, the role of procurement has expanded further, including the strategic concerns of the organization.

Today, procurement professionals are responsible for developing strategies that positively impact the business’s bottom line. They must also optimize their day-to-day operations, such as managing purchase orders and vendors and performing compliance checks.?

Supplier and vendor management, supply chain, cost optimization, and risk mitigation are the additional responsibilities of the modern procurement manager.?

However, market risks, critical shortages of raw materials, volatile global trade issues, and the complacent approach towards new technologies by business leaders are pushing the procurement department to the brink of breakdown.

11 Common Challenges in Procurement

The expansive nature of the procurement process exposes it to various risks and challenges. The most common procurement challenges are:

Rising inflation

The rising cost of raw materials is giving procurement professionals sleepless nights. Factors like supply chain disruptions, delivery risks, narrow labor markets, and unsupportive economic policies have increased costs.

COVID-19 and the continuing wars are the two major driving factors for the increasing cost of materials. Intermittent lockdowns kept production low, widening the gap between demand and supply, ultimately leading to higher prices.?

Russia and Ukraine are key energy exporters, but due to the conflict, production is low, building further pressure on procurement teams to arrange essential resources at a premium. After the invasion, energy prices increased by 20% for five months .

Procurement managers need help maintaining cost-effective procurement strategies due to rapidly rising prices. This makes rising inflation one of the top procurement challenges in 2024 for business leaders to overcome.?

Talent shortages

A significant challenge companies face is a need for more skilled professionals in the procurement function and supply chain industry. The Great Resignation , which had primarily impacted the US market, and the following recession-like tailwinds have sent the labor market into a tizzy.

Companies are pushing current employees to do more with less to fill the vacuum. The existing staff is, therefore, overworked and constantly burning out. Productivity is at an all-time low, and labor absenteeism is rising, further complicating procurement strategy.?

In 2024, procurement leaders must identify inefficient processes draining the workforce’s time and energy and find ways to automate them.?

Contract management

Contract management is the baseline for maintaining supplier relationships. While the contract is a legal document that signifies the beginning of a new relationship with a vendor, its objectives are much broader than that.?

The aim is to enable the business to deliver products at a competitive price. The contract ensures stable and quality delivery of materials and the overall cost-effectiveness of the deal.

However, most procurement teams cannot perform to their full potential due to high turnaround time, manual processes, supplier-related issues, lack of communication and coordination, and lost contracts.?

This culminates in missed opportunities for cost savings, regulatory non-compliance risks, strenuous supplier relationships, and poor decision-making. Companies need an efficient procurement system to automate and centralize the supply chain management process.

Inaccurate data

In most companies, procurement teams manage data entry manually. They enter data on spreadsheets and legacy systems with limited automation and analytical capabilities. As the data is handled manually, it’s primarily inconsistent and prone to human error.

The consequence of a bad-quality database drips down to poor and slow decision-making. Businesses lose out on crucial opportunities and expose themselves to unwanted risks like ordering excess inventory due to discrepancies in the inventory level data.

On the other hand, accurate and reliable data allows procurement leaders to make sound decisions and get visibility into the procurement processes.?

They get real-time insights and accurate data into demand patterns, market risks, delivery demands, and supplier-specific key performance indicators like lead time and ROI.

The procurement department in fast-growing companies should consider using a centralized data solution to automate data collection and analysis to make their job and financial audits easier.

Absence of internal communication

Poor internal communication is one of the most startling challenges in procurement as it openly contradicts the expectations of higher management from the procurement team, who assume the role of strategic leaders.?

The procurement team works independently; therefore, they primarily depend on other teams’ resources, such as financial information and cross-functional collaboration.

However, this information can come to them when there is a robust internal communication network.?

One of the critical challenges faced by the procurement team is that they work in silos; they are unaware of the organization-wide strategy and have a limited understanding of the future demands.?

Lack of technology keeps key processes slow, as data entry is manual and disorganized. This also reduces the ability to solve the present pain points and makes the business more vulnerable to risks. A technical system is necessary for the company to adapt to the shifting business conditions and overcome procurement challenges.?

Risk management

Procurement teams deliver the best results when there is a strong foundation for risk management. Procurement is a long process, and several internal and external factors influence it.

These factors also lead to internal risks like employee behavior and external risks, which are more challenging to control, like global events.

But, the following risks are at the top of a procurement manager’s list of managing risks in the supply chain:

Pricing instability

Currently, the supply chain market is volatile. The continuous price changes increase the cost of procurement. As suppliers demand more money, having a flexible budget is essential to avoid inventory shortages.

Supply chain disruption

Supply chains can be disrupted unexpectedly by factors like war, political issues, and natural disasters. The biggest challenge here is sourcing the materials from another supplier at the eleventh hour. The key here is establishing a response system to manage such instances more efficiently while working with a procurement expert.

Fraud

The procurement process is prone to fraud from various sources: employees, vendors, or contractors. Invoice fraud usually happens when suppliers inflate the cost, and the procurement team approves it without verifying. Price fixing is another frequently seen fraud where contractors team up to raise the cost or waive off discounts.

Supplier issues

Maintaining solid and positive supplier relationships forms the bedrock of solving procurement challenges. Many supplier issues are due to internal factors like unclear specifications and requirements. If the suppliers communicate their expectations, it will be easier to manage high-quality delivery.

Similarly, not doing due diligence on vendor assessment to understand their capabilities and not agreeing on KPIs are other factors that increase tensions in supplier relationship management.

Absence of technology

The lack of digitization in procurement processes is an issue for companies with robust plans to scale their procurement operations. Unless new technologies become integral to daily activities, they will never see the full potential of procurement strategy.

Lack of technology keeps key processes slow, as data entry is manual and disorganized. This also reduces the ability to solve the present pain points and makes the business more vulnerable to risks. Businesses need a? technical system to adapt to shifting business conditions.