Reining in maverick spend

17 May 2012
Richard HoggWhat will procurement look like in 10 years? None of us have the answer but we do hold the power to shape the future. The buzz in procurement has long been about elevating its reputation as a business driver. That’s a tremendous goal for any procurement team and we should all strive for it. The starting point is extending our reach beyond our own department by transforming procurement and compliance into a company-wide initiative. A common misconception among procurement executives is that other departments disregard negotiated contracts because they simply don’t care. In reality, there are much deeper reasons behind this non-compliance. Only identifying non-compliance stops short of addressing the root cause. Procurement teams must have honest conversations with their colleagues to better understand their motivations for off-contract spend. Here are a few questions to ask each department:
  • Why are you buying off-contract?
  • What current contracts aren’t meeting your needs?
  • How could current supplier deliverables be improved?
  • How often should we reassess the contracts?
  • Is the enabling technology appropriate and user-friendly?
The answers may surprise you. We’ve found that there are five primary reasons for non-compliance. Here are the solutions: 1. Poor communication of existing contracts It’s time for a dose of reality. The procurement team can easily lose sight of its communication to other stakeholders when the pressure is on to deliver cost savings. Create a system to regularly update each department on negotiated contracts and use this correspondence as a catalyst to discuss if needs have shifted. 2. Specialised supply requirements Departments go rogue to meet unique, one-off needs. They many think it’s easier, or that procurement doesn’t have a vendor that can deliver. It is procurement’s responsibility to overcome this, and to create a process for meeting each buyer’s unique needs. Ask your colleagues what they like about the current supply, and where it’s coming up short. 3. Buyer preferences Your colleagues may have ongoing relationships with suppliers from previous jobs and projects. This is especially true with services procurement. Start by asking who they want to work with, and bring those suppliers into the bidding process. 4. Category or organisational volatility Other departments may not use the term ‘supplier assurance,’ but they completely understand when a vendor fails to deliver what was promised. Mitigate this issue by establishing benchmarks and alerts for supplier performance. 5. Low software/process adoption Each department has its own systems to master, and enabling procurement tools often fall to the bottom of the barrel. Ensure that your process and technology is as user-friendly as possible, have a plan in place to measure user adoption and train users when necessary. Procurement can finally break down barriers to increased cost savings by tailoring its communications, policies and contracts to meet company needs. But the challenges don’t stop there. These dialogues should integrate with annual planning – if not more frequently. Richard Hogg is the general manager for the UK and Ireland at BravoSolution.
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