BvW Global – Why Procurement Processes are Important

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outsourcing procurement

Within many organisations a large volume of today’s purchasing requisitions volumes go through complex and possibly “unnecessary and lengthy” procurement processes.  By the time purchase requisitions reach Finance for invoice payment, many of those processes would have suffered an indeterminate business state, where no sequential set of defined and standardised process activities are followed thus providing poor procurement process performance. The net result is additional costs being built within organisations, less than optimal procurement planning and delivery, along with the frustration of dedicated end-users trying to perform daily activities.

So what is an indeterminate business state?

An indeterminate business state is the result of many potential causes such as process bottlenecks, lag time, approval mechanisms, segregation of duty, delegation, and inter-departmental communication. These are caused by a lack of defined process framework compounded by the combination of people, process, and technology touchpoints with many attempts made to patch the connection between them.

This lack of defined, documented and adhered procurement process framework hinders the performance of a procurement process (e.g. purchase requisition to payment).  As a result, users (who really are your internal customers) look for alternative ways to perform their jobs, by developing their own spur processes.  Spur processes may be highly efficient from a user perspective but they do create a number of organisational constraints.  Such constraints are the inability to have an auditable process, and the inability to proactively manage risk on behalf of the overall organisation by not being able to proactively manage budgets and expenditure levels.

Where the challenge lies for organisations is in trying to create an efficient process for both the user and the organisation – both having different requirements (time / visibility / auditability).

During our clients review to set the future direction of procurement processes, it became evident of the multitude of process variances that existed.  Such process variances, amongst others, were at the procurement process level, system level (e.g. re-keying of data into two or more systems), approval levels, and during lag time between activities (e.g. from purchase requisition to purchase order creation).  These symptoms are not unique to a particular industry, but are often caused by an organisation not having an over-arching “Business Service Management” strategy.

“…processes should follow a different set of rules based on the type of items requisitioned and their consumption by the departmental units.”

Findings revealed there was not great distinction of process business rules based on the items purchased.  A wide cross section of items would follow similar procurement process channels. These process channels were not differentiated according to specific business rules resulting in administration intensive procurement.  Procurement processes should make that distinction.

New processes should follow a different set of rules based on the type of items requisitioned and their consumption by the departmental units.  For instance, a stock catalogue item (that has been sourced via a supplier with an agreed price) should not follow the same process as an item that is not part of a catalogue (which has to be sourced from external parties).

These distinctions are critical to the behaviour of the procurement process and are necessary to relieve a large volume of non-differentiated requisitions from a “one size fits all” process channel.  A net benefit to the prioritisation of procurement processes and its performance will result in the better overall performance of the procurement and supply function within an organisation for the benefit of the departments they service and support (e.g. their internal customers).

So how we tackle this challenge?

Procurement processes should have specific “business rules” to either slow a process for additional manual activities or to speed a process (because approval has been granted at the demand and planning stage), it is therefore paramount to set those process business rules accordingly.

In the Requisitioning to Payment process cycle, a number of business rules can be applied that will directly impact the process performance.  These include:

  • Budget;
  • Fit / Form / Function;
  • Tolerance and Variance Levels;
  • Government Rules;
  • Segregation of Duties and Levels;
  • Delegation and Escalation Procedures;
  • Time Allowed to Perform the Steps;
  • Output “Variance” Controls;
  • Auto Creation of Documents or Manual Review.

Each of the above business rules and the individual criteria applied within will determine how a particular procurement process activity is going to perform.

Contact us to perform a benchmark of your procurement processes.

 

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