Archive: October, 2017

Best practise in procurement

This is for all those people who haven’t worked in procurement or have worked for organisations where procurement feels more like a barrier rather than an enabler.

Before describing some examples of best practise, it’s worth looking at the reasons for creating a procurement function in the first place. If you’ve worked in large organisations then these problems will be familiar:

  • Suppliers aren’t paid on time and they refuse to deliver until payment is made
  • A supplier is no longer able to provide a critical item. There are a number of possible reasons for this, for example, products like software reach end-of-life and support is withdrawn, a supplier is acquired and the new owner replaces the item with a more expensive one or the supplier goes into administration
  • Someone, like a finance manager or an internal auditor, starts to ask questions about what’s being spent, how is it being controlled and whether they’re getting value for money. A profit warning or suspicion of fraud may have sparked these questions.

So what is best practise in procurement? Below are some examples of the three key areas: policy, people and systems.

  • It sounds a bit dull but a clearly defined policy and set of procedures and processes is essential. Everyone in an organisation has a stake in procurement because they’re either responsible for ordering items or managing the budget that pays for them or use the items during their day to day work. The only way to avoid chaos with so many people involved is to agree on the rules that govern the main processes. The policy should be drafted in such a way as to help people do the right thing and not to catch them out
  • Once the policy is agreed then a team is needed to work with the business to implement it. The individuals in the team should have good relationship management skills, enjoy analysis, whether that’s numbers (spend reports) or words (contracts), and be commercially minded
  • Procurement involves two main processes, source to contract (S2C) and purchase to pay (P2P). The only way to ensure compliance to the policy where there are a high volume of transactions is to use systems with the rules built in. IT systems generate high quality data which enables the procurement team to look for opportunities to improve the price and reduce the risk.

By implementing best practise procurement, organisations will avoid the problems that often arise when they work with others and generate greater value for everyone involved.