Procurement is increasingly being recognised as an important function in Asia Pacific both for domestic companies and multinationals that rely on the region as an important source of goods and services.
Chief Procurement Officers (CPOs) play a crucial role in managing costs and protecting margins, which are key factors in achieving corporate and executive goals. This entails significant challenges in the life of a CPO. Faced with even more foreign competition as a result of globalisation and increasing prices of raw materials, executives are expected to seek new ways to better manage costs. This is further complicated by the concurrent need for quality and profit margins to be maintained, if not raised.
Through conversations held with various CPOs in Asia, we have identified several common key challenges across the board, some of which are unique to Asia's operating environment, while others are consistent with those encountered globally.
Based on our findings, here are the top five challenges:
Demonstrating visibility of realised savings
A common complaint amongst CPOs is that savings that have been negotiated or forecasted are not recognised by Chief Financial Officers (CFOs); this is because CFOs place a greater focus on the actual savings realised, which can be measured and tracked against the profit and loss statement of the company.
Only when real savings can be measured and audited will the sourcing and procurement function truly become a fundamental part of the finance team's annual budget planning process. Ultimately, CPOs in Asia must highlight how measures to save costs will affect the company's bottom-line.
Compliance to contracts
An all-too-often overlooked responsibility of the sourcing and procurement function is to ensure compliance to contracts. CPOs understand its importance, but ensuring that this message is delivered to the rest of the business, never mind that it is acted upon, is never easy. One of the most frustrating discoveries for a sourcing professional is to find that the contract they sourced and implemented is being ignored in favour of another supplier delivering comparatively less value.
The additional challenge specific to CPOs in Asia comes from the stringent regulation in public procurement, procurement fraud and corruption in sourcing, particularly in the public sector. The Ministry of Finance in Singapore recently announced an overhaul of public procurement rules in light of corruption scandals and instances of procurement lapses, which spread across several ministries and statutory boards.
Inability to manage suppliers effectively
An under developed supplier base can lead to unfair supplier selection practices. Companies often try to rectify this issue by adding more administrative processes to monitor supplier selection. However this only leads to more bureaucracy and inefficiency.
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