Procurement Teams Facing New Challenges

The COVID 19 pandemic demonstrated both the importance of supply chain management, as well as the need to quickly adapt to changing demands and inventory. Procurement teams across the world rose to the challenge with their understanding of procurement methodologies, as well as innovative thinking to solve outside the norm challenges. New challenges are on the horizon with manufacturing delays, supply shortages, price increases, and longer-term delivery schedules. As many approach the ending of the fiscal year and start the new one, here are three key tests that teams will face over the next months:

Get Ready to Encumber!

Government practices are that an item is identified, purchased, delivered and paid for – before the fiscal year ends. Budget and expenses are generally completed within the same fiscal year.  However, that may not be the case this year.  Many suppliers are facing tremendous manufacturing and delivery delays, with very little inventory in stock.  If your fleet director wants to quickly purchase a piece of heavy equipment or fleet vehicles, the order may be placed, however those pieces of equipment may not be delivered until fall or next spring.  As a result, procurement teams are going to have to quickly coordinate with their Auditors office and management teams, to create a list of all those items that can be purchased during this fiscal year, but won’t be delivered and paid for until next year – encumbering these funds will be a larger than usual issue to close out this fiscal year. 

Price Increases

Manufacturers are dealing with substantial price increases for input materials — from aluminum, paper, petroleum to wooden pallets — and are facing shortages in some areas, according to The Institute for Supply Management's January manufacturing report. It was the eighth straight month of price increases. For some commodities, suppliers may not be able to continue provide the same pricing as their costs have increased. Procurement teams will most likely start receiving price adjustment requests to existing contracts. Justification should be required with any pricing increase, and upon evaluation, procurement teams should be open to approving those with merit. Realizing that companies need to make some type of profit to remain financially viable to provide their goods and services is part of supply chain management as well.

Delayed Deliveries

As mentioned, with manufacturing and supply shortages, the resulting products will experience delivery delays.  An agency might have to wait months or next calendar year to receive the product.  It is important that orders and purchases still be entered and processed, as customer lines are long, with both private and public competing needs to be met. If your Agency isn’t in the queue, then your wait might be even longer as all those waiting will be served first.

The challenges that lie ahead face both sides of the purchasing desk – for the government AND the supplier.  Working closer and strategically through the issues will serve both teams well.