5 Limitations of Traditional Procurement Process

Organizations normally purchase items from numerous vendors. Procurement experts handle the details of getting these materials purchases at ideal costs. Setting up reliable procurement strategies and techniques empowers a private company to adjust its purchasing system to its long term objectives and goals. 

Procurement managers/ supervisors identify the requirement of what to buy, total buy orders, negotiate delivery times, get items and administrations from providers, survey and acknowledge things and endorse supplier payments.

Managing procurement as an integrated function can draw a positive as well as a negative effect on a business. Procurement can yield different advantages whenever utilized successfully with a decent procedure. But poor procurement processes can lead to cost organizations a billion dollars.

Some limitations of traditional procurement are:

High Costs: There's no competitive offering, which involves sellers contending to offer the products at the most minimal cost to benefit the purchaser. The firm additionally may acquire high search costs when looking for data about the most solid and least expensive suppliers.

Quality Standards: Sourcing from a single most vendor can compromise on the quality standards of the product that is procured. This may increase wastage and in general operational activity costs, leading to a decrease in the organization’s profitability, competitive advantage, and customer loyalty.

Increased Complexity: Generally, the procurement process becomes more complex due to shortage, delays, and supply chain disruption.

Limited Stock Supply: Expecting products from only a single seller can is a risk for an operating business. The supplier organization may neglect to convey the correct amount at the stipulated time, prompting to stock-outs. These stock-outs may prompt loss of sales, lower benefits, and loss of customer goodwill as well as loyalty.

Time Consuming: The most concerning problem faced in the traditional procurement process is that it consumes a lot of time for both the vendors and the buyers. This ultimately affects the productivity of the organization.

Challenges of Traditional Procurement Process

Procurement is tied up with acquiring products and enterprises and the various procurement procedures and tasks connected to this. Despite the many issues and challenges that are mainly associated with traditional procurement, numerous organizations go with the process.

A typical traditional procurement process is carried out with manual work that includes small as well as the repetitive work. These tasks can be anything from getting approvals, discussing bids, making negotiations, etc. Due to all this, it is a very challenging process.

In addition to this, the traditional procurement process is also time-consuming as well as expensive. This is because there are fewer people to manage the given processes. Dealing with the approvals, bills, and other invoices on paper are both inefficient and expensive and obviously inclined to mistakes and loss of administrative work.

Naturally, procurement is a troublesome procedure to control. Therefore, this makes visibility progressively obscured, prompting a greater loss of control and is normally expanded by miscommunication between purchaser organizations and the numerous providers included. 

The key element to beat these difficulties is automating an eProcurement stage. Connecting purchasers and dealers into one single stage. In addition, giving a system to clients to make purchases.  An eProcurement stage improves visibility that it unites all clients, procurement experts, and providers into one stage. 

Having a streamlined procurement process, sourcing and invoicing in a cloud-based stage prompts to controlled visibility over every transaction either locally or globally.

6 Procurement Metrics that will Drive Improvement

Procurement is the same, and most current procurement procedures have a suite of indicators for giving feedback on the performance. Effective and efficient procurement relies upon efficiently examining spend information. The three major classifications of KPIs (key performance indicators) for procurement are quality, conveyance and cost reserve funds.

The 6 procurement metrics that will drive improvement in a business are as follows:

>> Spend Management: This is normally communicated as a percentage of effective and actively managed spending. The more the organization’s spending, the more is the influence on procurement and also on savings.

>> Time of Procurement Cycle: This is a pointer of procurement’s productivity, both inside the team and with the suppliers. Key Performance Indicator’s (KPI) look at the average time of the procurement process from a sourcing demand being submitted to a buy request being set or agreement being agreed upon.

>> Quality: This metric takes a look at the quality and nature of products that are to be procured by tracking metrics like defect rates, dismissals of products, and supply disturbances because of low quality. Accuracy is another important metric both by the procurement team and suppliers. 

>> Delivery: This indicator measures whether the procurement done is right and the procured materials are the items that an organization needs and when they are in need.  Also, the organization can follow how frequently the deliveries are early or late and by how many days they are pending.

>> Agreement Compliance: This metric sees how well the suppliers are meeting contract terms and conditions. It is often expressed as the ratio of contracts that are not meeting the specifications with the complete number of contracts. 

>> ROI from Procurement: ROI metric is a significant level of measurement that helps in estimating the procurement performance by comparing cost reserve funds to the procurement’s team budget.

How e-Commerce is changing material procurement for SME’s

Whether a business is large or small, all of them have their own set of challenges. But small medium-size enterprises (SME’s) have their own distinctive barriers that must be overcome. So as to remain aggressive, organizations persistently investigate more channels that will help to overcome the challenges and build a strategic advantage.  

The challenges faced by SME’s in the procurement process:

1. Access to limited vendors: SME’s generally have access to the limited vendors only. Here, SME’s have very limited access to innovative products as well as raw materials.
2. Quality issues: One of the key explanations behind the low quality of the finished products is the low quality of raw material. This is the reason why SME’s find it difficult to compete in international markets.
3. Challenge in economies of scale: Indian SME’s feel difficulty to achieve economies of scale as work with smaller vendors who can’t consistently supply a large amount of material.
4. Challenges in the payment system: SME’s often have working capital related difficulties. SMEs will confront difficulties working with local as well as unorganized vendors who are not prepared to move into the new digital transaction system.

The difference observed with eCommerce:

B2B eCommerce will help to overcome the challenges of SMES’s procurement process in the following ways:

>> With b2b e-commerce platforms, SME’s will have multiple options to procure materials from different vendors. This will open a wide range of possibilities for the SME organization.

>> By implementing just in time procurement strategies will help the SMEs to make most of their working capital. Ecommerce also helps in cutting down on raw materials hence reducing the warehouse costs.

>> By sourcing from the b2b platform, SME’s can procure better quality materials and that too with discounted rates.

>> B2B platforms like helioscart will help SME’s to float quotations to “n” number of vendors across any geography.

Single platform for entire EPC solution

A B2B marketplace for EPC companies and material suppliers, Helioscart helps in connecting with the EPC sellers and Buyers on a single platform to explore business opportunities. It is a marketplace which caters to the needs of contractors, consultants, project head and managers, the procurement team to find the right kind of product at very competitive rates. Helioscart aims to add value to their businesses. Helioscart is a b2b portal that has a wide range of sellers dealing in electrical, housing, and power related products.


Helioscart for Sellers:

>> Exposure to various geographies.
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Helioscart for Buyers:

>> Large marketplace for buyers with wide range of products to choose from
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>> Connect with the sellers anywhere, anytime