Peter Drucker once said: “Only three things happen naturally in organizations: friction, confusion, and underperformance. Everything else requires leadership.” That sounds like a man who’s been around the block a time or two! Really, what Mr. Drucker said is true of any business, and it holds true for your company’s procurement department as well. Especially when your procurement team is tasked with managing a large number of indirect vendors, friction and confusion can easily creep in, leading to wasteful expenditure of funds, inefficient planning, and general underperformance.
As an organizational leader, no doubt you are keenly interested in how to maximize the yield from your vendor relationships while minimizing the unnecessary costs. What are the challenges when dealing with dozens, hundreds, perhaps even thousands of indirect vendors? What are some possible solutions?
Challenge 1: Accurate Comparison
When companies function with decentralized purchasing power it is inevitable that local procurement specialists, or even local employees, will have to make comparisons of indirect suppliers in their respective regions. The goal is to obtain the best value for the company at the lowest cost.
However, local employees may be limited in the information they have available or in their perspective. Some may do business with local indirect vendors due to personal preference, or lack of knowledge regarding more qualified less expensive vendors in nearby markets. This can be damaging enough to the organization for one branch, but when multiplied many times over, it can add up to a significant waste of funds.
Challenge 2: Proper Coordination
Another drawback to completely decentralized purchasing is that very often wires will get crossed, and miscommunication will lead to redundant purchases and unnecessary fees.
For example, a retail organization may allow local branches to determine their own vendors and schedule intervals for receiving MRO supplies. Or, perhaps a store manager sees that his branch is low on cleaning chemicals, and places an order for replenishment. Without centralized reporting in place, there is a much higher probability of inefficient order scheduling for the replenishment of the cleaning agents.
Often times, when zones of authority are not clearly defined, lack of clear communication and a failure to consult others in leadership positions can lead to wastefulness, large quantities of unused overstock, and even strain in working relationships. Even indirect communication, such as the ability of colleagues to retrieve vendor purchase records, and find out which supplies have already been ordered, can alleviate many of the worst symptoms. However, without a centralized information delivery system in place, this problem might also be exacerbated even further.
Challenge 3: Quality Control
Very often an indirect vendor may not be living up to its side of the contract. Or it may be shirking the company’s standards with resultant shoddy work. In either case, very often the process of auditing third-party vendors, and if necessary replacing them, can become complicated and time consuming in a setting of decentralized procurement. Many times, accurate records, and thus the compelling evidence for a change, are lacking. Vendor disputes can deteriorate into a game of “he said she said,” with no clear substantiation on either side.
Moreover, if the decision is made to discharge the current indirect vendor, without a more centralized database in place, it becomes much more difficult to find an appropriate replacement.
Challenge 4: Human Error
This is a general challenge in all aspects of a company’s operation, across the board. Without some kind of standardized, centralized process for the procurement of goods and services from indirect vendors, it is inevitable that errors will be made, and in greater frequency and magnitude.
So, what can be done to mitigate, or perhaps even eliminate these issues?
There are two solutions that can have an immediate and positive impact on your company’s procurement processes:
- Implement a centralized support system. If there is some kind of centralized support system in place, even though your company’s procurement structure may remain decentralized, there will be less coordination issues. A system like VIT’s eLink™ Gateway will make comparisons between indirect vendors easier. All catalogs will be able to be accessed from one centralized location, with product substitution and customization options available.
- Standardize your purchasing processes. With clear and transparent standards, quality control audits will be streamlined, and financially beneficial decisions can be more quickly implemented. eLink™ Gateway comes as a customizable part of VIT’s business process automation services, helping to drive savings and increase efficiency in your business.
When there is at least a certain level of standardization with procurement processes, costs will be kept low, and there will be less human error in general.
With 25 years of experience in the B2B e-commerce space, Value Innovation Technologies (VIT) understands the needs of a business’s procurement team, and eLink™ Gateway was born out of those needs. elink™ Gateway is not intended to displace currently deployed procurement platforms or ERP systems. It is designed to enhance and fill in functionality gaps in these systems, especially related to eCommerce, to improve outcomes for our clients. Learn more about this revolutionary, cost-saving technology today. Counteract the friction, confusion, and underperformance. Let VIT and our elink™ software lead the way.