Procurement can sometimes have a tenuous relationship with the customers they serve. In its role in ensuring compliance and mitigating risk to the larger organization, its practices can sometimes be interpreted by its customers as a series of archaic rules that impede their ability to quickly acquire the goods and services they need.
We know that this is not really the case. At its core, procurement is a support function. Procurement aims to ensure that goods and services are acquired in a fair, cost-effective, and equitable manner while maintaining compliance with a bevy of policies, laws, and other regulations. It works to ensure that vendors are complying with the terms of their contracts, and follows up as necessary with the appropriate mechanisms. It performs detailed spend analyses to ensure that its customers are getting the best price possible on the goods and services they need to succeed.
We know that procurement’s main goal is to ultimately support its organization, but how can we combat its reputation as a wall against which its customers often run into? In short, this almost always comes down to communication. In our work with hundreds of public sector organizations over the last twenty years, we have found that high-performing procurement functions are communicative and transparent regarding its policies and practices. This comes via a broad array of practices that we will discuss further in this paper.
Documentation
Almost every organization we have worked with has some sort of purchasing policy document. This is a basic piece of documentation that defines the overarching regulations and practices related to the organization’s procurement function. In high-performing organizations, the following types of documentation are also available:
- Purchasing Manual: This is a user guide targeted towards customers of the procurement function. It provides users with clear and digestible breakdowns of the procedures and policies related to procurement. This includes items such as identifying spending thresholds, workflow diagrams of the entire procurement process, and a list of roles and responsibilities related to procurement.
- How to Do Business Guide: This is a user guide targeted towards vendors – those who wish to do business with the organization. It should cover topics such as how to register as a vendor, how to engage with the bidding process, and how contracts are evaluated and maintained.
Each of these documents should be built off of existing procurement policy. Additionally, all documentation related to procurement (including the policy) should be regularly reviewed and updated by staff on an established cycle (e.g., every three years). This ensures the ongoing relevancy of all procurement-related documentation.
Training
The documentation developed by the procurement function should be used as the basis for the training of both internal and external stakeholders. Having regular trainings on the procurement process is an effective way to ensure that said process is being followed and also serves as a way to engage with both customers and vendors.
- Internal: Any new or recently promoted employee that may be required to engage with the procurement process should receive training on the procurement manual and overall process. Targeted trainings should also be developed in response to customer feedback, common issues that procurement staff are noticing, or updates to any purchasing documentation or policy.
- External: Training does not have to be limited to internal users of the procurement process. Many organizations also offer vendor training to those who wish to do business with their organization, but may feel limited due to a lack of familiarity with its processes. This can help broaden the vendor pool available to the organization while also promoting engagement. This approach can be especially useful for organizations that wish to broaden their utilization of smaller businesses that may be less likely to engage with its procurement process.
As with the documentation referenced previously, procurement training should be a formalized process that is regularly reviewed and updated by staff. Feedback from those attending training sessions should be considered when updating any related training materials.
Customer and Vendor Engagement
Alongside training is a need for broader customer and vendor engagement. It is important for a procurement team to effectively engage with both their internal customers as well as those who do business with their organization.
A survey is a powerful tool for capturing this feedback. A regular (e.g., quarterly, annually) survey gauging overall satisfaction with the procurement process can help quickly identify bottlenecks and other issues related to current procedures. It can also help locate potential needs for additional targeted training sessions for those who engage with the process. Questions should focus on rating the overall timeliness, efficiency, cost-effectiveness, and overall service customers receive during the procurement process. It should also allow users to identify key challenges they are facing in their dealings with the procurement process.
A similar approach should be used for vendors. Those who do business with the organization (such as responding to an RFP) should also be asked to provide feedback regarding their experience doing so. These types of surveys could be issued following the conclusion of each procurement, or issued to all registered vendors in the system at once on a regular basis (e.g., annually). Questions could be asked about topics such as the ease of use of the procurement portal, the quality of the RFP or other bid documents, or the timeliness and/or apparent fairness of the evaluation process.
Templates
The standardization of processes helps ensure compliance. That means that any individual engaging with the procurement process utilizes the same types of documents and procedures every time they do so. This is especially important in large organizations with decentralized or semi- decentralized purchasing operations. It is the responsibility of the team in charge of procurement to develop boilerplate templates for documents such as bid documents, contracts, and vendor evaluation forms. These items should be made available in an easily accessible location (within a purchasing manual, for instance) and be regularly reviewed and updated.
Spend Analysis and Cooperative Purchasing
Another way that procurement departments can better support their organizations is through regular spend analysis. This involves an analysis of all purchases made over a specific period of time to understand how much resources are being allocated to specific types of goods and/or services. The end goal of this exercise is to identify cost-saving opportunities, which is commonly accomplished through the utilization of master and/or cooperative contracts.
Procurement teams should be regularly performing this analysis to identify the goods and services that their various customer departments are acquiring and use this data to identify opportunities to consolidate costs. For instance, if three different departments are acquiring concrete from the same vendor, but through three individual purchase orders, there may be an opportunity to negotiate with the vendor for an ongoing contract at a lower rate. Another common approach is to utilize master contracts for regularly performed consulting work, such as design engineering for construction projects.
Spend analysis can also be used to understand vendor composition. For organizations that wish to emphasize the utilization of MWBE or small business vendors, spend analysis is a foundational component of a larger disparity study.
Additionally, many organizations will make this information available to any individual in the organization to allow them to review historic spending data and make more informed decisions when developing a requisition.
Internal Controls
The deployment of a procurement operation can vary extensively from organization to organization. Procurement could be fully centralized, semi-centralized, or fully decentralized, depending on the organization’s needs. Regardless of its composition, the utilization of thorough internal controls, paired with many of the items previously identified, helps ensure continued compliance with established policy. Examples of strong internal control practices include:
- Centralized authority over purchasing, even in a decentralized model. This individual (or team) is responsible for establishing policy and ensuring that the organization is acting in compliance with established parameters.
- Clear and standardized purchasing thresholds with associated approval authorities.
- Use of a common procurement software throughout the organization. This software should accommodate standardized procurement practices for all types of purchases.
- Establishment of a means of “flagging” certain items that could be out of alignment with standard practices. Examples include:
- Spending associated with common goods/services exceed established approval levels.
- A requested payment would exceed the limit set by a contract or purchase order.
- A change order/contract amendment exceeds a certain percentage of the original contract value.
- Standardized evaluation process (such as a scoring system) used for all vendor evaluations.
- A system in place for legal review of contracts and contract amendments dependent on the spending level.
- Establishing a policy for the utilization of sole source contracts as well as an enforceable process for doing so.
These are just some of the practices that will help ensure that procurement operations are conducted in a compliant and consistent manner, regardless of how the procurement function is structured. Augmenting these practices with those discussed earlier in the paper will help ensure that both internal and external users of procurement are engaged and well-trained in the procurement process.
