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3 Mistakes to Avoid in Procurement
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Starting a business is never easy, especially seeing as federal regulations get stricter in conjunction with worsening climate change – meaning that imperative business decisions such as procurement often gets left on the back burner.
Procurement is one of the most imperative steps to cultivating a more sustainable supply chain and ensuring your company can stay ahead of the future climate legislation – buy why?
In this article, we’ll review what procurement is, why it’s important, and 3 mistakes your company should try to avoid during the procurement process.
What is procurement?
Procurement refers to the process of securing or purchasing various goods or services, usually for business endeavors.
“ Think of a restaurant seeking to purchase food, table clothes, tables, chairs, and TVs for their place – the effort to acquire all of these items can fall under procurement. ”
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👉 Essentially, next to no business can operate without practicing procurement – seeing as t-shirt can’t be made without raw materials the same way a laptop cannot be made without batteries, metals, and other spare parts.
“ Anyone seeking to operate or open a business will have to keep procurement in mind. ”
As a result, many companies end up developing what is known as a procurement process – which refers to the steps and decisions considered before a final purchase is decided on. The actions taken before, during, and after procurement often require the expertise, experience, and assistance across several departments in a company.
Procurement in business usually involves the following steps:
- Preparation
- Filing a Request
- Processing the Payment
👉 In a sense, procurement is responsible for the baseline of all businesses and their sustainability – seeing as a clothing brand can’t be eco-friendly without sustainable materials and a laptop cannot reduce its emissions without careful procurement planning.
Why is procurement and supply chain important in the midst of climate change?
An effective procurement process and a sustainable supply chain is imperative for companies that want to tackle the root of their emissions and encourage greater sustainability.
Therefore, unbeknownst to many, procurement is vital as the world grapples with the effect of climate change – especially as markets continue to change in the midst of this global crisis.
Here are just a few reasons why procurement is more important than ever before given the current battle against global warming:
- Avoids Climate Change – Everything has to start somewhere, and oftentimes – the sustainability of a product starts with the materials it is made with, which directly refers to procurement. This is because the procurement process requires organizations, businesses, and even governments to make methodical choices that can have an environmental impact. When done correctly, procurement can help companies to lower their carbon footprint and ultimately reduce their overall environmental impact.
- Strive Towards Greater Sustainability – Procurement decisions have a profound impact on a company’s overall sustainability, seeing as the small procurement choices a company makes can have an impact in the long-run. For instance, think of a coffee shop that opts to acquire paper straws over plastic ones. This may seem trite, but over time – the company will find it has reduced its environmental impact and may be deemed more sustainable than before by customers. Ultimately, procurement can also help to prevent excess waste – which also helps to reduce greenhouse gas emissions in landfills.
- Adhere to Expected Environmental Practices & Future Regulations – Through their procurement practices, organizations can encourage suppliers to adopt more sustainable and environmentally friendly production methods. This can include setting sustainability standards, requesting environmental certifications, and requiring suppliers to adhere to certain environmental regulations.
- Build Greater Climate Resilience – Think of a café in a country where load shedding exists. If that café doesn’t have a generator, it is subject to losing business every time there is a power outage. However, if the café incorporates the use of renewable energy – it will become more resilient to power outages and the overall effects of climate change. The same goes for companies that opt for sustainable procurement, seeing as seeking to ethically and sustainably source products can ensure their availability and stock in the future – which ultimately can help to prevent backorders and other disruptions to a business.
- Comply with Legal Protocols – Regions of the world such as the US and Europe have implemented new environmental disclosures such as the SEC Disclosure Rule and the CSRD respectively. Therefore, it is more important than ever before that companies ensure that their procurement process aligns with the expectations of these regulations in order to avoid legal trouble.
- Brand Reputation & Stakeholder Expectations – Consumers, investors, and other stakeholders are starting to expect companies to commit their time and money to demonstrate dedication towards sustainability. This means that companies that fail to implement a viable procurement process may lose customers, investors, and find it increasingly difficult to manage their stakeholders.
- Reduce Business Costs – Sustainable procurement practices often allow companies to reap the rewards of reduced operational costs, seeing as many will opt for long-term contracts with suppliers or implement the use of energy efficient technologies.
- Boosts Creativity – Climate change has increased the need for companies to think outside the box, and procurement can help with that seeing as it can encourage a business to think deeply about their suppliers and future products to be offered. This flexibility and general ability to adapt to the changing needs of the world can prove a company as an asset to its respective industry.
“ Companies that make an effort to implement sustainable procurement practices will directly help to stop climate change on a global scale, as this often means cultivating a more sustainable supply chain. ”
In addition to this, companies can prevent greenwashing, benefit from reduced business costs, and even reap the rewards of curating a better brand reputation.
👉 Ultimately, procurement plays an essential role in mitigating climate change seeing as procurement has an undeniable impact on a company’s supply chain, adhering to stakeholder expectations, and ensuring that all environmental regulations are being met.
What are the effects of a poor procurement system?
Some of the effects of a poor procurement system may include bad PR, a loss of revenue, decrease in profitability, and an overall bad reputation.
“ However, the biggest tell-tale sign of a poor procurement system is when a company is losing money – which is often a result of superfluous purchases. ”
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Additional signs of a poor procurement system may include:
- Making mistakes in purchasing orders
- Poor communication with suppliers
- Working with suppliers without a contract
- Remaining unaware of monthly orders
- No competitive bidding
- Lack of organization within the company
- Ignoring regulations
- Unclear roles and responsibilities
👉 A poor procurement system can ultimately lead to the beginning of the end for even the most successful companies, seeing as much of a company’s budgeting matters and overall finances must align with their procurement process.
What are 3 mistakes to avoid in procurement?
There are numerous mistakes companies should do their best to mitigate when it comes to procurement, but here are our top 3 errors we’d advise you to avoid when perfecting your procurement process.
1. Overpurchasing & Not Keeping Track of Purchases or Inventory
Money is an important tool for companies that want to grow, but it’s also an important factor in any procurement process.
However, many companies still fall subject to overspending when seeking to procure supplies or materials for their products and services.
“ As a result, this can mean the company exceeds their budget, runs out of funds to feed other businesses ventures, and acquires excess supplies that in turn creates unnecessary waste. ”
It’s important for companies to keep track of their inventory to ensure excess purchases aren’t made and that funds aren’t depleted under avoidable circumstances.
2. Failing to Carefully Choose Your Suppliers
Much of cultivating a successful procurement process is contingent on creating a competent team of suppliers.
“ Many companies that have poor communication with their suppliers often struggle to establish a functional procurement process. ”
This is because suppliers serve as the ultimate source for understanding how to find the best available products at the most optimal prices. Therefore, it’s important for companies to carefully cultivate their supply chain – as this sets up a base to create a successful procurement process.
👉 Keeping up good communication with your suppliers could give your company access to exclusive deals, and in turn – help the business to save money while still procuring sustainable materials and supplies.
3. Acting on Impulse & Neglecting Thoughtful Decision Making
Oftentimes, our most catastrophic consequences are a result of failing to think critically about our choices – and this concept is more than true when it comes to procurement.
This is because making impulsive decisions on your purchases can create bigger headaches later down the road. It's important to stick to a schedule, but it’s also important to ensure that all employees understand how purchasing decisions should be made.
“ Meeting harsh deadlines should not compromise thorough and careful planning in a procurement process. ”
👉 In addition to this, many companies will fail to negotiate pricing as a result of trying to secure supplies or meet a deadline – which is another colossal mistake to avoid in procurement.
What are some solutions to the challenges of procurement?
Even if the procurement process seems challenging, the good news is that there are several solutions to ensure a company can develop a good procurement strategy.
Here are some ways your company can overcome the challenges of procurement:
- Avoid Overspending – It’s difficult to not dish out the big bucks when it comes to procurement, or spending on anything in life – which is why creating a budget can do wonders. This way, your company can keep track of previous purchases, current inventory, and the average cost for shipments, taxes, and duties to be paid on foreign goods. In addition to this, seeking to minimize where all of your supplies come from can help to reduce shipping costs, i.e. – aiming to buy all of your foreign goods from Germany instead of Switzerland, France, and Germany.
- Careful Supplier Selection – It can prove difficult to create the perfect team of suppliers, but one of the ways to find support in this is to seek the help of automation – as this tool can help to view suppliers’ information and documentation that could prove relevant to your company’s mission. In addition to this, your company can consult the assistance of a carbon accounting company like Greenly to help you keep track of your supply chain and other sources of excess emissions.
- Make a Checklist – Especially under pressure, we often let stress get the best of us and will forget to verify our checklists whilst engaging in practices such as a company’s procurement process. Therefore, it’s important to create a step-by-step plan for employees working in the procurement process to ensure no vital actions are neglected.
Procurement is an integral part of success for any business, and while it can prove challenging – we know it’s possible for your company to develop the procurement process of your dreams.
What about Greenly?
If reading this article on 3 mistakes to avoid procurement has made you interested in reducing your carbon emissions to further fight against climate change – Greenly can help you!
Keeping track of all the necessary business tactics that could impact your sustainability such as sustainable procurement can be challenging, but don’t worry – Greenly is here to help. Click here to schedule a demo to see how Greenly can help you comply with all of the upcoming regulations relevant to your company.
Greenly can help you make an environmental change for the better, starting with a carbon footprint assessment to know how much carbon emissions your company produces.
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