3 Big Examples of Common Procurement Mistakes

We’ve all had a bad day at the office. Here are some big examples of key procurement mistakes, and the terrible impact they can have.

We’ve all had a bad day at the office. Let’s face it, even the best of us sometimes can’t avoid a stumble. The trick is to ensure you’re wise to these key procurement mistakes to stop you getting caught out.

Procurement is a vital strategic function for any successful business. So whether you’re enhancing your opportunities with e-procurement like Procurehere, or running on handshakes and a well-kept handwritten ledger, here are some fundamental mistakes to avoid, and some examples of just how wrong they can go.

Not keeping an eye on the detail

Human error is one of the greatest strategic risks to a business. A study undertaken in 2008 showed that ‘misunderstandings’ cost businesses in the UK and US around US$37 billion annually. It’s important you attempt to mitigate your exposure to human error to maintain a successful procurement function. E-procurement solutions like Procurehere reduce your exposure to this risk, helping ensure seamless approval pathways and increased business oversight.

Of course business oversight is all well and good, but sometimes you need to just pay a bit more attention. A luckless broker at Mizuho Securities in Japan suffered the painful impact of a failure of concentration in 2005, when in an unfortunate error they listed 610,000 shares of a valuable stock at just 1 yen, instead of the intended single share at the price of 610,000 yen. Once the dust had settled, the impact was a loss to the tune of around 27 billion yen, or around US$260 million at the time.

Failing to manage positive relationships

Whether you’re building an upmarket private residence or delivering on a vital public infrastructure project, good supplier and contractor relationships are key when it comes to construction. You want to maintain open and transparent communications during the tender and throughout the construction process. Make sure you encourage and support the ability for your partners to share the good news as well as the bad. That’s true in every area of procurement.

If you want to see the impact this miscommunication can have, than take a look at the problems encountered by the council of Edinburgh, Scotland, delivering iconic trams to the city streets. The project began in 2003, with disputes between major stakeholders and a mismanaged tender process seeing it overrunning by 5 years, and to the tune of around US$1 billion. The final cost had escalated to such a degree that the project was eventually estimated to have cost as much as the first moon landing.

Not understanding your supply chain

In today’s increasingly global world, maintaining detailed oversight of often complex international supply chains is a growing challenge. However, understanding your supply chain and maintaining oversight is still a critical part of effective procurement.

The importance of this became apparent in 2013 when a Europe-wide food scandal revealed that horsemeat had been substituted into products at supermarkets across the EU, sparking political and business uproar. Not only did this significantly impact consumer confidence, it cost one of Europe’s largest retailers an estimated GBP300 million in share price value, or around US$200 million.

Why not explore how e-procurement can enhance your business oversight, with a free trial of Procurehere.

 

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