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Everyone involved in the supply chain knows procurement is an integral part of any business. But there is a hidden risk in the procurement process. It’s a risk that can cost your company money – sometimes a lot of money. Companies may experience various problems in the procurement process, ranging from delayed deliveries to non-delivery, to poor-quality products, to product substitution, to price fluctuations. There’s a dire need for procurement risk management, which aims to foresee potential problems and protect firms from them during the procurement process.
Let us see which procurement risks are weakening the entire supply chain and how the latest technologies like AI come into play to mitigate these procurement risks.
Vague Vendor Selection Process
It’s no secret that procurement departments have very little control over the quality of the goods and services they purchase. This means multiple costs, time delays, and delivery failures. These can be difficult to quantify but can be devastating to your bottom line – affecting stock availability, quality, and efficiency. When you purchase products or services, you’re constantly worried about the quality of the vendor. Will they deliver on time? Is their quality good? Are they knowledgeable? A bad vendor selection will cost too much money, waste time, and deal with a bad reputation. Poor vendor selection can lead to vendor performance issues, project cost overruns, and delays.
When a company selects a vendor, they need a strategy to follow to ensure that the vendors are evaluated and selected correctly. The vendor selection process is time-consuming, resource-intensive, and complicated.
AI’s risk-based vendor selection approach shortens the vendor selection process and provides clear, objective criteria to make vendor selection decisions.
Incorrect Analysis of Need
The majority of purchasing managers admit to not having a process in place for managing their procurement needs. Hence, they leave money on the table. Many organizations have found themselves the victims of purchasing mistakes. This often happens due to either overstatement or understatement of the need. The most common mistakes are mistakes in the purchasing decision, the process of procurement, and the purchase itself. When it comes to purchasing, the process is usually the same. A request for a product comes in from a customer. A request is then made to the vendor, the vendor replies, and further discussions follow until a contract is agreed upon. The key to making sure a purchasing decision is correct is to plan the purchasing process well. If you fail to measure the requirement, it results in incorrect forecasting and budgeting.
AI can analyze the inventory levels and helps place the order of precise quantities. Its intelligent programs, using time series analysis and other tactics, can predict scenarios, identify optimal stock levels, recommend actions, and even act – independently or with human permission.
Poor Supply Chain Management
When it comes to supply chain management, risk is very much a top concern. The entire typical supply chain process can take up to six months, with hundreds of businesses left frustrated and confused, and lots of time and money wasted in the process. Companies often find themselves in situations where they have to postpone the implementation of a project because of poor supply chain management. It hurts procurement planning and process as a result. This leads to delays, increased procurement costs, and decreased customer satisfaction.
With AI-enabled supply chain management workflows, you can get a clear view of all your suppliers and organizations involved with your product’s supply chain, from key contract information to the latest news and updates.
Tip: Try automating your vendor management systems with procurement automation software to nurture vendor relationships.
Error-Prone And Paper-Based Systems
When you are using outdated, paper-based contract management systems, you enter into riskier contracts and are more likely to make mistakes and get stuck in delayed approvals. Handwritten copies are more likely to get tampered with. Paper copies are also likely to get lost when transferred from person to person for approval. Lack of backups, limited security, inconsistent formats, and no visibility of version history – all these limitations invite risks.
AI-enabled contracts are designed for a purpose. With AI, you can seamlessly migrate to paperless processing. AI-enabled document management systems are designed to clean up the risk in your procurement process. It increases your capacity to manage your contracts, giving you a clearer view of your risks and allowing you to negotiate more effectively and efficiently.
No Control on Spending
Procurement plays a critical function in spending management. In many companies, controlling spending has been a major concern. Considering the volatility of today’s economy, it is next to impossible to gauge spending with routine analysis carried out by human resources.
Artificial intelligence can track and analyze transaction data for every purchase and assess usage patterns. There are many procurement software products available in the market that use this AI-based technology to intelligently analyze your spending patterns and help you gain control over them.
Risk-Averse Nature
Companies are getting more and more risk-averse. If you don’t manage your procurement risks, you’ll become a step-child in the eyes of your shareholders. You have a supplier that is critical to your business. If they went out of business or if they were to change their terms, it would be a grave problem.
AI-powered procurement risk management software helps you make informed decisions and mitigate your procurement risks. It has a proven track record of helping companies like yours achieve this.
Over to You – Future-Proof Your Procurement Risk Management with AI
A problem in procurement can have many negative consequences, such as loss of profit, loss of time, and loss of reputation. What is left to do is to try and limit the damage from the problem. Using artificial intelligence, you can collect and analyze all the data you need from the beginning to the end of the contract process. AI has the expertise and can solve the most complex problems of procurement with machine learning and deep learning. It will ensure that the process runs smoothly and that the delivered products are of high quality and at a competitive price.