Compliance is essential to every organisation and complying with procurement policies is no exception. Without it, procurement is unable to mitigate risk or generate savings – the very benefits it aims to deliver. If we can’t deliver these, we should pack our bags and go home.
Excuses for poor compliance sound less convincing as time passes. Recent research suggests poor quality data is the most common excuse. The argument goes: “If the information was better then we’d know which areas to target.” But there are procurement systems on offer to suit every budget and they are more user-friendly than ever before.
Another excuse is lack of buy-in from senior management. If controlling costs wasn’t enough to convince senior managers in an age of austerity, there is a variety of regulation that demands a high level of compliance – from the US’s Sarbanes-Oxley Act of 2002 to the UK’s Bribery Act 2010. Rarely has procurement been presented with a better opportunity to get involved in controlling costs and improving compliance.
Compliance in procurement can be measured in a number of ways. One of the key metrics is ‘spend under management’. Research shows that procurement, on average, manages only 60-70 per cent of spend. What about the other 30-40 per cent, most of which is indirect spend?
Compliance is a low priority in many organisations, but it shouldn’t be. Not only is it critical to procurement’s success, but better compliance pays.
Take, for example, British Airways. The introduction of its new procurement system delivered a number of benefits.
First, the system provided users with direct access to all the commercial and legal benefits of negotiated contracts so the quality and quantity of savings improved.
Second, greater visibility of spend and sophisticated analysis helped the procurement team identify new areas of opportunity.
Finally, processing efficiency improved significantly as the cost reduced from £70 per transaction to less than £10.
If procurement can’t achieve high levels of compliance, it can’t demonstrate that it has delivered real business improvement – whether savings that impact the bottom line, adherence to policies like health and safety or greater processing efficiency.
And if you can’t prove that you’ve done what you’ve said, how can you be trusted?
☛ Angus Craig is director of Craig Hall Consulting
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