In our private lives, we all buy goods and services almost every day. We do so usually but not always without any problems. If there are problems, then we are protected by a raft of consumer legislation which helps take some of the sting out of caveat emptor (let the buyer beware). Protection is not perfect but it is there and it is supplemented by a number of voluntary codes of conduct practised by customer focussed vendors.
In business to business buying and selling transactions, however, such buyer friendly legislation either does not exist or is much more limited in its scope. Moreover, many vendor organisations have a much more hard nosed approach to their customers. The importance of power in a relationship is much more evident and so is the vendor organisation's use of its power to more aggressively protect itself.
The consequences of poor procurement of goods and services can be more evident. Consumers buy relatively few things which are seriously likely to damage their wealth if they buy badly (examples are a home, a pension, may be a savings plan and a loan scheme). Organisations buy critical goods and services much more frequently and they can be are put out of business by the cost of a poor procurement.
In many organisations, staff are often given little or no formal training in procurement. There is also widespread ignorance of the causes of commercial failure arising from poor procurement of goods and services. We look here at some of the things which you should know and which are covered by a series of modular courses which are designed using the Pareto 80:20 principle to quickly bring purchasing and contracting staff up to speed without the need for long term study.
Procurement checklists are essential for staff who do procurement as a part of their work and can be useful for professional procurement staff as well.
The former find checklists helpful as they guide them through the process of successfully managing a procurement exercise. The latter type of staff find checklists helpful as a management tool both for planning and timing purposes and also to ensure that no step is omitted.
A good procurement checklist is not simply a list of the nine potential stages which must be followed in order to procure successfully. (The nine stages are: identifying the need, drafting a specification, identifying suppliers, pre-qualifying suppliers, tendering process, negotiation, letting the contract and supplier de-briefings etc and, finally, managing the contract). A good procurement checklist must contain a list of steps which need to be applied in order to successfully conduct the procurement. These then become the basis for planning the procurement activity.
The first step in mapping procurement to corporate strategy is to determine what constitutes the corporate strategy. Corporate strategy is not fixed. It depends on a variety of factors many of which are not under the control of the management of an organisation. Changes in external circumstances can cause significant shifts in corporate strategy and it is necessary for the procurement professional to be aware of the changes and to be capable of delivering an agile response.
For planning purposes, it is possible to distinguish between eight or nine corporate strategies depending on the sector of the organisation. There are a variety of procurement activities which can support these strategies and it is essential for the procurement professional to determine the blend of activities suitable for the circumstances of any strategy.
This requires not only a high level of procurement skill but also an ability to adapt and develop the agile response. The starting point is the knowledge of the possible corporate strategies and the procurement activities which support them.
A good starting point is to look at the causes of commercial failure from the procurement point of view. This has two advantages, it helps to identify what might go wrong and it provides a checklist to make sure that you are covering all things which are needed for things to go right.
For low value/low risk procurement, commercial failure might not matter but if the value of the spend is high and/or the risk is high, then it makes sense to think very carefully about avoiding it. Because prevention is better than cure, the time to think is before starting the procurement process rather than later.
There is of course more to minimising the risk of commercial failure than simply recognising and thinking about failure's causes. Procurement is a process involving planning, specifying, selecting suppliers, managing a contracting process (inviting tenders and negotiating) and then managing the contract itself. At each of these stages of the process, failure can almost be built in if there is insufficient attention paid to the process. It helps to consider each stage of the process and to analyse the possible causes of failure as a first step to taking preventative action. Each stage has between five and eight causes of failure. Some of the causes crop up at more than one stage which means that they are fundamental to good procurement.
It is by considering each of these causes and working through the actions needed to avoid them that risk of commercial procurement failure can be avoided or at least minimised. People doing procurement need to know the sources of the risk and what they can systematically do to avoid them. For professionals, this systematic analysis of risk might come as a result of their training but for other people either doing procurement independently, perhaps on a delegated basis, or working as a part of a team, the process is not obvious. Also, because it is poorly understood, it seems to be slow and time consuming but ignoring it can and does lead to major cost overruns.
Procurement is fundamentally a knowledge based activity. There is need to identify and systematically record knowledge associated with procurement. This helps prevent re-inventing the wheel because the knowledge (specifications, invitations to tender, tender analysis criteria and techniques, lists of suppliers etc) can be manipulated and used for other procurements. It also serves as a data base which can be used to manage claims made by suppliers and support representations made to other departments and management within the procurement organisation.
All knowledge management begins with the recognition of the three types of knowledge. This recognition has to be followed by identification of what is meaningful and useful knowledge. A comparison is needed with what should be known and this leads to a gap analysis followed by a plan of how to fill the gaps.
PHS Management Training - Copyright © 2017
For training or a consultant call