Should Procurement Just Get Out Of The Way?

I recently read an article whose author stated that procurement “should just get out of the way” of stakeholders.

This is a surprise from my perspective. Articles over the past few years, and my personal experience, have shown that procurement and stakeholders need to work closer together. This article seemed to recommend the opposite.

The Idea

It may seem that, too often, procurement gets in the way of work being completed.

Procurement should provide information to the stakeholders, and ensure the procurement process is as smooth as possible. The result of a sourcing event should allow the stakeholder who requires the service/material to get what they need when they need it.

In the most recent project I worked on for vehicle parts for the Transportation Department of the company I work for, it was the stakeholder who told us what they needed. Then, it was my team and I that sought out current and new suppliers, set-up supplier workshops, and worked with the stakeholder to craft a detailed scope of work.

With the award to the now strategic supplier (the supplier who was awarded the business had been one of ten suppliers previously used), the stakeholder is able to order what they need online through the supplier’s website.

But my team and I aren’t stepping away. We are tracking supplier performance against agreed upon key performance indicators (KPIs), dealing with stakeholder/supplier issues, and conducting semi-regular benchmarking of pricing on small selections of parts to keep the supplier honest and competitive.

The Risk

The risk is that when procurement “gets out of the way” spend returns to the unmanaged state it was before. Instead of a handful of strategic suppliers, stakeholders go to whomever they see fit. The synergies and savings created by procurement are lost.

You want to avoid this situation.

So, while procurement should streamline things for their stakeholders as much as possible, procurement should never just “get out of the way”.

 

Standardization In Processes to Reduce Costs

Go to any department in your organization. How consistent are the ways people are doing things? How consistent are the results in that department? Is everyone on the same page, each person executing their job by a set of processes? Or is everyone doing their job their own way?

If your company is like the company I work for, standardized processes are a near-term goal – or in some cases a far off dream. Each person in a department has their own way to do work, and feels their way is best. Their way has worked thus far, why change it?

Standardizing processes is key to streamlining a department, and in procurement it can mean money saved that directly affects the bottom line.

Purchase Orders

Purchase orders are a primary issue when working to standardize. Some procurement agents process purchase orders one way, some another way. Some buyers have a checklist they follow each time, while other buyers just run the PO through the ERP system and send it to the supplier without another thought.

Standardizing purchase order processing should include, at minimum, the following:

  • Check pricing against negotiated numbers.
  • Consolidate duplicate line items.
  • Confirm material need dates.
  • Confirm shipping method and carrier.
  • Receive order acknowledgement from the supplier.
  • Update expected/promised delivery date from supplier in the ERP, and notify the stakeholder.

Just these simple standardized steps can ensure consistent outcomes each time. Consistent outcomes mean dollars saved internally in time worked on purchase orders and externally in keeping supplier pricing of materials and freight consistent with pre-negotiated prices.

Contracts

Contracts may be more complex than purchase orders, but standardization can be achieved in the process. The procurement specialists that are responsible for RFPs and contracts should have a checklist of everything they need to do, from the moment they receive the RFP/contract from their stakeholder, up to award. This checklist may even include contract management.

Templates are another way to standardize RFPs and contracts. While stakeholder specifications and requirements may differ, the organization should have a single template for procurement specialists to follow with standard information that each RFP and contract must include, such as RFP timeline, milestones, and evaluation criteria. The organization may have two or three checklists and templates for different RFP/contract situations, but each should follow a standardized, enforced process.

Conclusion

Standardization has many benefits, and in an organization’s procurement processes it translates into savings that directly affect the bottom line.

In fact, the German Institute for Standardization, DIN, recently published a report on how standardization positively effects companies. In the report, they found that not only did standardization give companies competitive advantages, but also lowered transaction costs and had positive effects on the buying power of the companies surveyed.

Now is the time to begin process standardization in your procurement organization.