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Major Issues for Digital Procurement and Supply Risks

Many companies know the importance and benefits of digital procurement but may not have sufficient knowledge before implementing it. Thus, this may lead to internal conflicts during the transformation process, and is an initial obstacle for implementing digitization in procurement. The procurement process needs to be rationalized with the aim to improve data visibility, reduce costs and risks. The company will face serious challenges if well-planned strategy and risk is not handled properly by procurement managers. Most organizations do not possess reliable real time data, information and a predictable procurement strategy. This could result in disruption of service, product supply chain and at the same time reduce efficiency in evaluation of new suppliers. Network security is another challenge faced by the companies during digital transformation where companies may be prone to cyber-attacks.

Awareness, Training and Communication

The implementation of digital procurement require a cross-departmental and decisive organizational structure. Full support from top management plays a very vital role in the success to the implementation. If the leader is lacking in the skills and knowledge in utilizing procurement technology, it will be difficult to establish an organizational structure that is able to support the transformation. Additionally, it will be difficult to resolve any conflicts of interest or administrative obstacles that might be encountered during the transformation process. Moreover, wrong decision choosing for an appropriate digital procurement products and solutions will result in increasing costs and reduction in efficiency. A well-planned systematic training is extremely important in providing a general understanding on the procurement process for employees. Employees need to understand the organization’s training objectives. In order to improve work efficiency and reduce errors, employees need to have sufficient knowledge of the new system. Proper communication at all stages during the project is very crucial to avoid any possibility of misunderstanding and minimize productivity loss. Employees’ opinions are required for a meaningful and stronger communication.

Procurement Strategy, Visibility and Data Accuracy

A well-planned digital procurement strategy can help to minimize errors, increases saving opportunities, eliminate maverick spending and ensure policy compliancy in the organization. If the organization is lacking a complete and well-planned procurement strategy, problems will arise. This will then results in financial losses and supply chain disruptions. Leaders must be able to decide on a strategy that will focus on achieving various quantifiable outcomes. Digital procurement must be able to identify potential risk for the supply of key products or services bother internally and externally. This will enable them to develop a quantified overall picture of current total product or service-related risk. They are also required to develop the right strategies to counteract the risks. Managers should be able to analyse the data according to the specific situation and assign resources to eliminate risks accordingly.

Most organizations do not have a proper plan that will encourage visibility and the timely capturing of data, during the implementation process. If information within the supply chain is inaccurate or unattainable, it will be challenging to estimate their procurement expenditures. Company’s cash flow will also be affected if the organization is unable to make a sound purchasing forecast. Without the forecast, there could be supply gaps or over storage of inventory. Visibility and reliability of data across the supply chain is an important tool to meet regulatory requirements and mitigating risk. Leveraging technology can help organizations to deliver better value while reducing costs, thus achieving a robust view of supply chain at the same time.

Challenges in Selecting the Right Vendors

One of the greatest challenges in digital procurement is effective selection on the right vendors. This is an important process as it will determine the organization’s approved vendor lists for the purchasing department. Companies will be able to judge and evaluate suppliers accurately. During this initial process, the organization will be faced with abundancy of data sources that is available on the web. Most organizations know local suppliers only. They may have little or no background information about overseas source suppliers from any e-commerce platforms. There is limited information on the suppliers’ company operations and their financial status as well. Once an order is confirmed with a supplier, the organization must always keep track and follow up on the vendors’ output. This is to ensure that the supply of products or services is both consistent and in good quality. Suppliers who did not meet the customer’s requirements and specifications must be thoroughly avoided. Otherwise, may lead to reputational and business losses. It is also very important for the organization to ensure that the vendor is not disrupted by any threats. At the same time, they are able to maintain their ethical, quality, safety, and environmental standards.


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References

Bobby J.Davidson. (2017). “How Technology Is Changing Procurement”. Retrieved from https://percentotech.com/bobbyjdavidson/procurement-technology/ ,accessed 10/09/2021.

Chit Ngu Wah Christina, DPSM. (2020). “Essential Criteria to Evaluate Construction Supplier”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/essential-criteria-evaluate-construction-supplier/, accessed 12/09/2021.

Daniel Weise. (2019). “Digital Risk Management in Procurement”. Retrieved from https://www.linkedin.com/pulse/seeing-whats-come-digital-risk-management-procurement-daniel-weise, accessed 10/09/2021.

Elsa Zhang Chun Hao, DPSM. (2019). “Mitigating the Risks of Global Sourcing”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/mitigating-risks-global-sourcing/, accessed 11/09/2021.

Lee Meng Yin, DPSM. (2020). “Mitigating Global Sourcing Risks in a Pandemic”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/mitigating-global-sourcing-risks-in-a-pandemic/, accessed 12/09/2021.

Liong Sze Pei, DPSM. (2020). “Fraud Prevention Strategies for Construction Procurement”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/fraud-prevention-strategies-construction-procurement/, accessed 11/09/2021.

Melvin Yeo Tu Chin, DPSM. (2021). “Cybersecurity Risk Mitigation for Digital Procurement”. Retrieved from SIPMM: https://publication.sipmm.edu.sg/cybersecurity-risk-mitigation-digital-procurement/, accessed 12/09/2021.

Sam Steers. (2021). “Five common challenges faced by the procurement industry”. Retrieved from https://procurementmag.com/procurement-strategy/five-common-challenges-faced-procurement-industry ,accessed 10/09/2021.

Yasmine Ang Hui Ting, DPSM
Yasmine Ang Hui Ting, DPSM
Yasmine Ang Hui Ting has substantive years of experience in the specialised field of procurement and sourcing, specifically in the food packaging industry. She holds the Diploma in Business Studies and is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Yasmine completed Diploma in Procurement and Supply Management (DPSM) on September 2021 at SIPMM Institute.
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