"The 10 Procurement Pitfalls"

Dave Nelson, Patricia Moody, and Jonathan Stegner

Supply Chain Management Review

April 2005, pp. 38-45

This article explores ten common supply management mistakes companies make that hinder growth and diminish profitability:

1. Low expectations—Not expecting excellence from suppliers or from the procurement group itself is the first pitfall. Lack of management attention to or recognition of supply chain processes is the main sign of low expectations.
2. Decentralized purchasing—If purchasing is too decentralized, purchasing offices and decision making will not be coordinated; supplier strategies will not be linked; volume will not be leveraged; relationships will primarily exist at low organizational levels; and there are local incentive schemes.
3. Production reporting into operations or marketing—When procurement reports into marketing, complexity can be built by creating overlap and redundancy. When purchasing reports to operations, there is a tendency to neglect spending management and strategic procurement planning. The authors of this article recommend reversing this flow, so marketing and operations send their data to purchasing. Cost and supplier performance can be compared and consolidated.
4. Lack of good analytical tools—"What is essential for profitable spending management is the ability to gather, consolidate, manipulate, and analyze procurement information from many sources. The frequency of analysis at minimum should be once per quarter."
5. Supplier proliferation—Too many suppliers affects the quality of parts and the company's ability to manage the suppliers effectively. It also limits high-level partnerships that are necessary for supplier development.
6. Short-term, low-level tactical focus—Short-term focus leads to too much fire-fighting, and the resulting over-consumption of resources to solve problems. It also puts serious stress on both the suppliers and the organization.
7. Bad press—Procurement teams will be seen as only dealing with "costs" if they do not make a direct and clear statement of their connection to profitability and revenue growth.
8. Product variety and complexity—"If producers want to find immediate cost relief and change the way buyers and engineers work together, reduction of variety and complexity is a great place to start."
9. Purchasing separate from new-product development—There needs to be reciprocal interaction between these two groups during product development. Both Honda and Delphi report that this is crucial to optimizing the upfront area of the supply chain. A bill of materials database should also be available to both groups.
10. No supplier development—The authors of this article state that the proven payback for providing supplier development personnel to supplier is three to four times their cost.

Back to top of page