What Are the Challenges Facing Purchasing and Supply Management?

Why Purchasing Has Become Harder

In many companies purchasing used to be an administrative job. A department sent a request, someone in procurement phoned a familiar supplier, a purchase order went out, and that was that. Plenty of businesses still work this way, but it no longer holds up. Prices move faster, international shipping is less predictable, tax and regulatory requirements are more detailed, and management wants to know where every riyal of spend goes.

Procurement hits profit directly. In a hypothetical trading company where purchases equal 70% of sales, cutting purchase prices by just 2% adds 1.4% of sales to net profit. Getting the same result from the sales side would take a much larger revenue increase. That makes procurement challenges a profitability question, not an internal admin matter.

This article covers the main challenges facing purchasing and supply management in Saudi companies. For each one we explain where it comes from, how to size it in your own business and what to do about it, then close with a priority table, the metrics to track and a 90-day plan.

Challenge 1: Dependence on Too Few Suppliers

Many companies rely on a single supplier for critical items, usually for understandable reasons: a long relationship, comfortable payment terms, easy dealings. The trouble starts when that supplier is late, raises prices without warning, or runs into financial or operational problems. With no approved alternative ready, sales or production stop.

Sizing the risk

Pull a list of items or categories where more than 80% of spend goes to one supplier, then rank them by importance to sales or production. A critical item with a single source is a risk that belongs on management's agenda.

What to do

• Qualify at least one alternative supplier for every critical item, even if it receives small volumes.
• Route a share of demand to the alternative to keep the relationship active and its prices known.
• Review the financial and operational health of key suppliers every year.
• Consider local or regional sources for items with long shipping times.

Challenge 2: Price and Currency Volatility

Raw material and freight prices follow global markets, and suppliers in countries whose currencies float against the dollar pass currency moves into their prices. The riyal is pegged to the US dollar, so dollar-priced purchases are relatively stable on the currency side, but purchases in euros, yuan or other currencies carry exchange risk.

• Use annual or semi-annual contracts with fixed prices, or a price formula tied to a published index, for key items.
• Run competitive quotes regularly rather than relying on the incumbent's price list.
• Record the price on every PO so you can see price trends by item and supplier.
• Load freight and duties into item cost to see the real price, not just the invoice price.

Challenge 3: Maverick Spend

A department head buys directly from a supplier with no requisition or PO, then sends the invoice to accounts for payment. Sometimes the urgency is real; sometimes the official process is simply too slow. The result: un-negotiated prices, unvetted suppliers, invoices that may not qualify for input VAT recovery, and spend management only learns about after the fact.

• Set a clear rule: no payment without an approved PO, except for predefined categories such as utilities.
• Speed up the official process so it is not an excuse to bypass it, for example single-level approval for small requests.
• Provide petty cash with a firm limit for small urgent buys, settled with receipts.
• Report monthly on invoices received without a PO, broken down by department.

Challenge 4: Slow Approvals and Manual Work

A requisition travels by email past three managers, each traveling or busy, and takes a week to reach the supplier. The PO is printed, signed and scanned. At receiving, the storekeeper writes quantities on paper, and accounts matches them by hand against the invoice.

A hypothetical cost of delay

Say a company issues 150 POs a month, and approvals average 5 days when they could take 1. That adds 4 days to the effective lead time of every item. Covering those 4 days needs more safety stock. An item used at 50 units a day and costing SAR 30 a unit needs 200 extra units, SAR 6,000 of cash tied up for that one item alone.

• Build a value-based approval matrix: clear limits for each level, such as department head up to a set amount and CFO above it.
• Approve electronically from phone or browser, with reminders and automatic escalation when approvals stall.
• Receive by scanning straight into the system, not on paper.

Challenge 5: Poor Spend Visibility

A simple question like "how much did we spend on packaging last year, and with whom?" takes days of manual work in many companies, because purchases carry inconsistent descriptions, sit in different branch systems, or never entered a system at all.

A hypothetical spend analysis

A company analyzes SAR 12 million of annual spend and finds that 20 suppliers account for 75% of it, 300 others share the rest, and three branches buy the same item from different suppliers at prices up to 8% apart. Consolidating that item across branches alone opens the door to a better price, and trimming the tail of small repeat suppliers cuts admin for both procurement and accounts payable.

• Use one spend category structure in the system, linked to items and accounts.
• Route all purchasing through POs in one system for every branch.
• Report spend quarterly by category, supplier and branch.

Challenge 6: Choosing Suppliers by Relationship, Not Data

Without structured performance data, suppliers are chosen and renewed on impressions and relationships. One that is routinely late stays because "everyone knows him", and a better newcomer never gets a chance.

The answer is a simple scorecard for each key supplier, calculated from system data rather than memory:

For a full method, see our article on supplier performance evaluation.

Challenge 7: Tax and Regulatory Compliance

Input VAT and e-invoices

Recovering VAT on purchases is not automatic. You need a valid tax invoice from a VAT-registered supplier containing the details the Implementing Regulations require, including both parties' VAT numbers, the date, a description and the VAT amount, and the purchase must relate to taxable supplies. If you have not paid the supplier within 12 months of the supply date, the deduction must be reversed. Under e-invoicing Phase 2, standard B2B invoices are cleared by ZATCA before they reach you, so check that incoming invoices are electronic, cleared and carry your details correctly before you book them.

Record retention

VAT records must generally be kept for at least six years, eleven years for movable and intangible capital assets, and fifteen for real estate. POs, receiving notes and invoices are part of those records.

Government procurement and local content

If you supply government entities, the 2019 Government Tenders and Procurement Law gives preference to local content, local SMEs and listed companies, and tenders run electronically on the Etimad platform. A new Government Tenders and Procurement Law was published on 4 September 2026 and takes effect on 2 January 2027, strengthening the role of the Local Content and Government Procurement Authority. The local content in your own supply chain may affect how competitive you are. More in our article on government procurement in Saudi Arabia.

Challenge 8: Lead Times and Logistics

A shipment from Asia that used to arrive in a predictable window can slip by weeks because of port congestion or rerouted shipping lanes, and customs clearance can add days more. If reorder points rest on "usual" lead times, stockouts follow.

• Record order, ship, arrival and receipt dates on every import PO.
• Calculate actual lead time and its variability for each supplier and route, and feed them into safety stock.
• Track open shipments in a weekly report instead of waiting for them to arrive.
• Check conformity requirements for regulated products in advance, such as SABER certificates, so shipments are not held at port.

Challenge 9: Contract Management

An annual supply agreement at negotiated prices is worthless if the buyer does not know it exists and issues POs at higher prices. Contracts that renew automatically without review can carry on with terms that no longer fit.

• Keep a central contract register with start and end dates, prices and committed volumes.
• Link contract prices to POs in the system so they appear automatically.
• Set alerts well before expiry to allow time to negotiate or re-tender.

Running competitive quotes

For large purchases or annual agreements, request quotes from at least three suppliers against one standard specification. Quotes built on different specifications cannot be compared. Record all quotes in the system, not only the winner, so next time you know who was close and who was far off, and you have a price reference for negotiation.

Challenge 10: Skills and Roles

A buyer who spends the day chasing approvals and printing POs has no time to negotiate, analyze spend or develop suppliers. Building the team starts with freeing it from repetitive admin, then training it in negotiation, total cost analysis and contract management. The 2025 Labor Law amendments require employers to adopt training and qualification policies, which is a good prompt to set a clear development path for procurement staff.

The Three-Way Match: Your Core Control

The simplest and most effective procurement control is matching three documents before payment: the purchase order, the goods receipt and the supplier invoice.

Hypothetical example

A PO for 500 units at SAR 40 is SAR 20,000 before VAT. The goods receipt shows only 480 units arrived. The supplier invoices 500 units at SAR 41, SAR 20,500. The match flags two gaps: 20 units not received and SAR 1 over the agreed unit price. The correct amount is 480 × 40 = SAR 19,200 before VAT. Without the match, the company would have overpaid SAR 1,300 before VAT on one order. Multiply that by hundreds of orders a year.

Compare Total Cost, Not Invoice Price

A common mistake is choosing on unit price alone. Hypothetically, Supplier A quotes SAR 95 a unit and Supplier B SAR 100, so A looks 5% cheaper. But A ships from abroad with a 45-day lead time, freight and clearance add SAR 6 a unit, it demands full prepayment, and 3% of its past shipments were rejected. B is local, delivers in 7 days and gives 60 days to pay. Once you add freight, the extra safety stock to cover the longer lead time, the cost of cash paid upfront and the cost of rejects, B may well be cheaper. Evaluate quotes on the total cost of getting a good unit into your warehouse.

Setting Priorities

To track progress, pick a small set of metrics and review them monthly. We cover the most useful ones in our article on procurement KPIs.

A 90-Day Plan

1. Days 1 to 30: enforce "no payment without an approved PO", adopt the value-based approval matrix and start three-way matching every supplier invoice.
2. Days 31 to 60: classify the last 12 months of spend by category, supplier and branch, identify single-source critical items, and start recording actual receipt dates against agreed dates.
3. Days 61 to 90: launch scorecards for the largest suppliers, begin qualifying alternatives for critical items, build the contract register with expiry alerts, then compare metrics with your baseline.

Where the System Comes In

Most of these measures depend on the whole purchase cycle living in one system: requisition, approval, PO, receipt, invoice and payment, linked to inventory and accounting. In Tranquil, the purchasing module covers this cycle and connects to inventory and finance, and multi-level approvals and reports can be customized to your needs, with API integrations where required.

Frequently Asked Questions

What is the biggest challenge in procurement?

It varies by company, but maverick spend and the absence of three-way matching are among the most damaging and the quickest to fix, because both cause direct financial leakage.

How many alternative suppliers does a critical item need?

At least one qualified alternative, with a regular share of demand so the relationship stays active and you know its real prices and capacity.

Can input VAT be recovered without a tax invoice?

No. Recovery requires a valid tax invoice from a registered supplier with the legally required details, and the purchase must relate to taxable supplies.

What is a three-way match?

Matching the purchase order, goods receipt and supplier invoice on quantity and price before payment. It is the simplest control against paying for goods not received or at prices above those agreed.

Is the cheapest supplier always the best?

Not necessarily. Compare total cost: price plus freight and clearance, extra safety stock for long lead times, payment terms and reject rates.

How can we improve procurement without a big project?

Start with "no payment without a PO", a clear approval matrix and a simple review of your top 20 suppliers. You can also contact the Tranquil team to discuss automating your purchase cycle.