Mistakes in business come with the territory but those made in procurement ought to be considered among the most detrimental to the success of an operation. Common procurement related risks include supplier issues such as delivery delays, increases in demand, quality problems and fraud.
These issues are often the result of mistakes made in the procurement vetting process, according to Rudi Kruger, GM of Risk Solutions at LexisNexis Data Services.
Mistake # 1 – Insufficient Vendor information
In the technological age, information is abundantly available to those who seek it. However, many organisations still neglect to gain valuable information on their suppliers and vendors. Aside from the financial stability and reputation of a vendor, each business has its own unique requirements from their suppliers.
“It is of absolute importance to know where suppliers source from and the challenges they face within their own supply chain. Suppliers must be transparent and willing to declare crucial information that could potentially affect your business,” says Kruger. “Business could be affected by delivery delays, inconsistent quality, and changes in pricing due to fluctuations in the international exchange rate.”
Mistake # 2 – Neglecting vendor-employee relationships
It is expected that supply chain employees will form relationships with suppliers by working with them regularly. However, it becomes a problem when these relationships develop into opportunities for personal gain.
“Fraudulent activity and conflict of interest between supply chain partners and employees is always a risk. Always ensure that supplier and employee relationships do not cross the line by running regular checks on staff and suppliers,” says Kruger.
Mistake # 3 – Poor relationship management
“Neglecting to develop and maintain strong company to company relationships with suppliers puts the success of your business on the line, as a disaster on the part of a supplier could negatively affect your organisation,” says Kruger.
He adds that it takes time to nurture relationships with suppliers but it is worth it as it leads to reduced costs, increased efficiency, performance and communication, better understanding of each party’s business model, good customer service, continual improvement and the ability to adapt to each other’s needs.
Mistake # 4 – Not Using Technology
There are many solutions on the market designed to simplify every aspect of procurement. Failing to take advantage of these tools could result in weakened efficiency, excess expenditure and administrative errors. One such solution is Lexis ProcureCheck, an easy to use web based system designed to help organisations, including government departments, corporates, financial institutions, business bodies and risk and procurement professionals to identify and prevent corruption within procurement processes.
The system, which identifies ownership of property and the business interests of employees, helps recognise conflicts of interest within organisations and potential supply chain partners.
With the help of South African Fraud Prevention, Lexis ProcureCheck assists with identifying potential fraudulent activity within vendors and employees. It also enables users to investigate negative and positive news on vendors and employees to assist in mitigating reputational risk.
Another key benefit is that it assists supply chain management officers to ensure compliance with the Public Finance Management Act and the Municipal Finance Management Act.