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Studies show that 9 out of 10 Excel spreadsheets contain errors. Most of them are human errors that can easily be prevented.
Spreadsheets are an easy way to register data, which is why so many procurement professionals choose to use them to the detriment of dedicated tools. However, because they are so easy to use, they are also prone to errors (like typing incorrect amounts or formulas, or incorrectly factoring in numbers).
For small businesses, mistakes may not have a significant monetary impact. But for larger organizations, Excel spreadsheet errors can lead to millions of dollars in loss. Not to mention, they can ruin a professional’s career for life.
Procurement mistakes are often hard to detect. Therefore, we’ve summarized below five common mistakes organizations make and that are associated with Excel spreadsheets. Let’s begin:
1. Sending purchase orders without approval
Purchase requests should always be verified against a quotation before a purchase order is sent to suppliers.
Some may argue that this will slow down the process. This is true, but in the long run, this will prove to be a very costly procurement mistake.
By using e-procurement software, you can eliminate situations like these because purchase orders cannot be sent without an approved purchase request.
2. Approving purchase requests without verifying them first
In the absence of a tool that can notify you when inventory levels are low, you can find yourself approving purchase requests without verifying them first.
Often, organizations do this because they’re afraid of delaying projects. But this is a mistake that can completely deplete your budget.
What can possibly happen is that suppliers will underdeliver or overcharge you on the invoice. Either way, automating your procurement process will help you avoid these situations.
3. Not negotiating
You should never accept a price as it is. Most suppliers are open to price negotiations, but even if a supplier doesn’t budge, you can still negotiate the times of payments, delivery dates, a discount for bulk purchasing, etc.
This is where an e-sourcing tool can really help. By organizing reverse auctions, suppliers are competing against each other, which helps to drive prices down.
4. Not automating procurement
By now, it should already be clear that the biggest mistake organizations can make is not automating procurement and relying instead on legacy tools such as Excel spreadsheets, emails, fax, phone, etc.
One of the main benefits of using procurement software is that mistakes are caught early before they become irreparable.
Another benefit is that the use of software speeds up processes - you no longer have to mail documents and wait for a response, everything happens instantaneously, with just a few clicks.
Procurement Excel spreadsheets horror stories
In case you’re still not convinced you should leave Excel spreadsheets behind in favor of dedicated procurement tools, here are a few examples of very costly mistakes:
$24 million lost due to Excel copy-and-paste error
Due to an employee misaligning the rows in a procurement Excel spreadsheet, Canadian power company TransAlta lost $24 million. The copy-and-paste error led to bids being aligned with the wrong contracts, wiping out 10% of the company’s profit for the year.
$11 million severance error due to Excel typo
In 2005, Eastman Kodak Co.’s stock tumbled steeply due to an Excel error. In this case, the error was a simple typo: an employee added too many zeros to a severance record, resulting in an $11 million overstatement.
Spending millions on worthless contracts due to Excel reformatting error
In 2008, Barclays Capital prepared an Excel report listing the Lehman Brothers contracts it intended to purchase. Because some rows including contracts that Barclays did not intend to buy were mistakenly hidden instead of being deleted, when the spreadsheet was reformatted as a PDF, the new version included those rows. So Barclays found itself legally committed to making the purchases.
Start automating your procurement process now!