Category Archives: Procurement News

Transforming the Procurement Function from Within

It’s a tall order to come in and completely transform the procurement function within an iconic global company.

Kelly Irwin - Head Procurement Function Holcim

But Kelly Irwin didn’t beat around the bush when she started as Head of Procurement at the Australian subsidiary of Swiss group at Holcim (which has since merged with the French group LaFarge) five years ago.

The company, which is a leading supplier of aggregates, concrete and concrete pipe and products, had plenty of room for improvement. In fact, the company’s procurement department was mostly handling complaints, rather than handling strategic buying for their future.

The 20+ year procurement industry veteran soon realised the magnitude of the role, so set about implementing improved systems and processes for the procurement function. The first step was to establish a centralised purchasing model, then build a talented procurement team to support her role.

“It was a very dysfunctional team that had little direction, that wasn’t aligned with the company’s strategic directions,” Irwin says.

Building an Effective Team

Today, Irwin heads of a team of 34 people and manages a mind-boggling AUD $900 million budget. She has implemented and centralised structure and processes within the procurement function. She has previously worked in procurement for Qantas and building firm Boral, though this role with Holcim Australia is her first where the procurement buck stops with her.

With those changes bedded down, her remit is again broadening, and she will now handle all buying across New Zealand for the company, with a recent trip across ‘the Ditch‘ to establish processes there.

Not only this, Irwin has developed a highly effective procurement team, which has been awarded the Internal Customer Excellence Award for Holcim Australia for three years in a row.

Her approach has transformed the procurement function for the company, with her team has an 80 per cent engagement score, which was the highest in Holcim Australia in 2015.

Irwin has strong capabilities in building effective working relationships with teams, development of Procurement strategy, management of supplier and keyholder expectations, highly developed negotiating skills, contract management, risk management and compliance expertise and operational experience through the implementation of change initiatives and process improvements.

Irwin was also recently awarded the CIPS Procurement and Supply Chain Management Professional of the Year.

Building Individual Engagement

Irwin keeps staff informed on all aspects of the business, has an open door policy, and doesn’t mind being contacted after hours.

“I recently read that people play harder when they know the score. This is something Holcim Procurement do well. Not only do we have clear goals, (quantitative, savings targets), but we have the measurement tools the accountability element to keep score on how we are tracking.

“I believe this shared goal, as well as individual accountability to reach this goal builds individuals’ commitment to team uniformity direction, and overall engagement,” she says.

To emphasise her point, she recalled talking to someone in procurement who had major issues trying to speak to the head of the department. This was slowing down their ability to tackle their own role.

“This person would need to book a meeting with their superior two or three weeks ahead, and it was usually a walking appointment as he was always in between meetings. I honestly don’t know how someone can be that busy, that they’re practically unavailable for their own staff. You’ve got to make sure your staff feel engaged and supported, and that you’re a team.”

Nearly 70 per cent of her team is degree qualified, though that wasn’t a prerequisite when she entered the industry more than two decades ago.

“I always look to hire people that complement the skills we have, and find people who have talents in areas we need to improve in.

‘Be Inquisitive Problem Solvers’

Like so many working in procurement, it was never a deliberate decision to follow this career path.

Irwin deferred university and entered the workforce before stumbling into a procurement role, with the sound of buying things for a living appealing to her. She’s since completed a number of qualifications, certificates and management courses that support her role.

“Procurement is one of those professions that you’ll excel in as long as you’ve got the right soft skills.”

Irwin describes herself on being approachable, down to earth and honest. And she doesn’t take herself too seriously.

“Though depending on where you’re standing, that can be a bit rough as well,” she admits.

Procurement professionals need to be inquisitive problem solvers with strong communication skills, she says.

“While your superiors might be great at what they do, with all due respect, they don’t necessarily know more than you about your function within the business. Realising that you could well have a far better idea of the best approach than other senior people within your business can be professionally liberating.”

As far as the future goes, Irwin says the procurement function has an increasingly broadening remit.

“Procurement was entrenched in a brown cardigan mentality in the past, but that’s changing, and we’re now a business function that’s well respected across the globe.”

Kelly Irwin is one of the leading Australian professionals to speak at the second annual Women in Procurement 2016 event, which inspires leadership, advances careers and drives innovation in procurement, and supply chain function and practice. The event will be held in Melbourne in 21-23 March. Book your ticket here.

5 Crippling Beliefs Keeping Suppliers in the Poor House

Suppliers may feel they don’t get treated fairly in the procurement process. But are there actions they could take to attract procurement’s attention?

Customers and Suppliers

This article was first published on LinkedIn.

Before the jackpot of the internet, purchase research involved, for me, accessing supplier directories such as Kompass (who are still going strong), putting up with pesky sales reps with inadequate brochures extolling the virtues of their products/services, trawling exhibitions, and leaning on colleagues and contacts.

Now, not so much. Although I’m still leaning on colleagues and contacts!

A while back I was involved in putting together a Preferred Supplier List for a bunch of equipment spend categories. The starting point was finding ‘someone’ to research suppliers online globally.

Here’s what drove me bananas as I tried to collate a long list of suppliers to invite to enter a procurement process:

1. A belief that ‘build it and they will come’.

Getting on that front page of Google is critical. Of course, I’m a professional and searched and searched pages. I was focused on finalising, quickly, my long list of ten or twenty suppliers, per category. Those early pages were my key hunting ground.

2. A belief that the lingua franca of international business is [insert local language].

Are you wanting to sell your goods internationally? Language content options are a must have. I’m being open. If there wasn’t an English option I moved on. Maybe a missed opportunity for me – and definitely a missed opportunity for an aspiring supplier.

3. A belief that website content full of fancy jargon and TLAs* will get the sale.

Tell me in ten words or less what you offer and who you help. Right up front on your first page – front and centre. I’m happy to take a deep dive into the details later on my ‘journey’, but for now I just want assurance you sell the category of equipment I’m interested in.

4. A belief that it’s all about social media engagement.

Contact details – your phone number and email. Please. Everywhere, every page, very visible, consistent and definitely including an email address, which, ideally, is a local market email addresses that doesn’t say [email protected] Make it as easy as possible for people to contact you directly.

By the way, thrilled with all those Instagram and Pinterest and other social media followers – how’s that working out for you? And while I’m here, are we absolutely sure about that contact form? I can see why YOU want my name, role, company, email, phone number, I’m just not so sure what’s in it for me.

5. A belief that having a unique, quirky website design will really drive business.

Let’s talk website design, which is not my thing. I’m just a victim of it from firms all over the world. When I’m buying internationally for a major client, I don’t want quirky (ok, maybe I’ll be accommodating if I’m buying creative services or wanting local supply chain).

Mainly, I’m craving surety that this website reflects an international supplier. Give me a nice clean corporate-looking website – make me feel comfortable and open to trusting you.

Am I asking for too much? Really? Please note, this is not an exhaustive list!

Action: Go have a look at your website, right now, and see if the 5 beliefs stand scrutiny. Your website is (probably) the first contact for your target customers – make it easy for them.

After all, you don’t want to end up in the poor house.

*TLAs = three letter acronyms; in fairness, Procurement’s not short of them either!

Is Your Company’s Product Responsible Enough to Buy?

Is your company’s procurement ‘responsible’ enough? Which pressures and stakeholders are the most powerful ones for your company?

socially responsible procurement

According to a 2012 study by Procurement Leaders, 61 per cent of organisations are driven by end-customers. Governments and regulations represent the second-most influential pressure that organisations face, followed by 48 per cent of organisations that embed CSR principles in order to meet employee expectations of working for a responsible company.

The above underlines that if you do not have CSR activities in place in the procurement function (and the company in general), then you take the risk that your end-consumer will abandon your brand. Conversely, there is also a business opportunity, as consumers are becoming increasingly willing to pay a premium for CSR labelled products.

What does responsibility mean?

Responsibility, or in procurement terminology Responsible Procurement Management, can be divided into 3 main categories: environmental, social and economic.

Practically speaking, Responsible Procurement is about defining a set of mutually compatible requirements, specifications, and criteria that favour protection of the environment, social progress, and economic development. You do this by identifying resource efficiency, improving the quality of products and ultimately by optimising costs.

In short, you could say that Responsible Procurement is about increasing a company’s profit, improving its strategic supplier relationships, and strengthening its brand, while remaining vigilant towards competitors and revolutionising their procurement strategy.

What does this mean to your company?

From an environmental point of view, your company should ensure that natural resources that are extracted and processed into goods and services are consumed in a more efficient way – getting more out of less. By changing the way we produce and consume goods, we can still limit the impact that climate change is bringing about.

From an economic and social perspective, your company has to ensure basic human rights and economic development, regardless of age, gender, nationality, religious belief or economic status.

How could your company get started with the journey?

Risk in Responsible Procurement is the probability that there will occur violations of the company’s or its key stakeholders’ values and perceptions. Determining a company’s risk profile is specific to each particular company.

Some companies will choose to focus on suppliers where the company has some bargaining power, or suppliers who have a strategic importance to the company. Others choose to target all of them.

Creating the risk profile must then take into account the following:

  • Risk level: Is it a strategic or an operational risk?
  • Probability: Indicate the probability of the risk occurring. Do you consider this as high, medium or low risk?
  • Impact: What impact on the organisation would there be in the event of the risk occurring? Again use high, medium or low.
  • Risk treatment: You should indicate the appropriate treatment for the risk. This could be: avoid risk, reduce or control probability, reduce or control the impact, transfer risk or accept risk.
  • Owner: The owner is the person who is accountable for taking action or carrying out the risk treatment.
  • Current status: Detail the current status of the risk. For example, has vital information been gathered?

Start managing your risks

Following the risk assessment the next natural step will be to look for ways to manage the risks. Risk management options will be particularly affected by the following factors:

  • What bargaining options does your company have over your suppliers?
  • Is your company a major customer or just one among many?
  • Who are the drivers of the value chain; is it producer or consumer-driven?
  • To what extent are subcontractors used, and how big a role do they play in the manufacture of products: for example, in situations where the supplier is a wholesaler, it may be necessary to identify the actual manufacturers.
  • How many financial and human resources is needed to work with it?
  • How far back in the chain will it be necessary to manage the risks?

Don’t give up – though the picture must be right

When Procurement Leaders carried out their research in 2012, they asked participants how important CSR was currently in their respective organisations. 42 per cent of the respondents said it was ‘Very Important’, while 38 per cent said it was ‘Important’.

When asked about how long their CSR policy had been in place, 36 per cent stated 1-3 years, while 30 per cent stated 4-6 years. What was clear from the research was that nobody wanted to be left behind, nobody wanted to be seen as a laggard in this field. Appearances matter.

The most important message is, though, that the actions you take must be equal to the picture you draw to the public.

Why Automation Can Help Procurement Achieve Its Goals

Automation is frequently talked about in manufacturing, but rarely in the field of procurement. Could it be the key to helping procurement achieve better outcomes?

Automation and Robotisation

Download GEP’s white paper on achieving P2P Excellence through Procurement and Finance alignment here.

Czech writer Karel Čapek was the first person to use the term “robot”.  In his 1920 play “Rossum’s Universal Robots”, he conjured the image of synthetic humans, carrying out the tasks that original humans no longer cared to do, yet remaining largely happy in their work. For a while.

Inevitably things went South, so to speak, and the robots learned to resent their drudgery.

Stories of automation leading to unforeseen misfortune are at least as old as Goethe’s 1797 poem, “The Sorcerer’s Apprentice”. Yet automation remains a goal, if one that is not without challenges.

Automation in Procurement

Automation is often seen as a good thing, because it accelerates processes (sometimes) and frees up valuable human resources (sometimes). In the context of manufacturing, introducing automation has been hugely successful because of the requirement for a production line to continually repeat identical tasks within exact specifications. Automation is therefore understood to be just that, the effective ‘robotisation’ of a process.

In a sense this is also desirable in Procurement because a good percentage of the tasks and processes are repetitive and of the same type. However, that is not the same as being identical, and it is often less than desirable to force a range of different variants into a single model.

Thus, what we need is the acceleration of the process and the reduction in administrative overhead but still maintain the unique aspects of each event in the process. This is where automation gets tricky.

Importance of the ‘Right’ Process

From the perspective of software design, the practitioner must be able to automate those parts of the process which are identical time after time, and permit the customisation of those parts that are unique, whilst accelerating the whole.

This is where an understanding of Procurement (and associated processes) is key in the design and implementation of the software.  As one of our senior project managers put it, “It is not a good idea to use automation to accelerate a broken process.”

What he means by that is this: whereas in manufacturing, the process of machining a particular widget by hand is already the ‘right’ way to do it, and automation simply repeats the task; in Procurement it cannot be taken as read that the sourcing methodology, contracting process or requisition-to-invoice workflow, are in any way the ‘right’, most efficient, or best, way to go.

In reality, then, for procurement software to provide a solution it must involve not only automation, but transformation. Using the imposition of an automating technology to review where the challenges in the current manual processes lie is a vital part of any such program. That way the eventual automation of the task will be more accurate and, ultimately, more useful.

Accounting for Whole Process

Another key consideration is best made with a manufacturing analogy again. If the entire process from raw material to finished goods is automated, then the rate of arrival of the end-product at the packing and shipping station will be considerably greater than in the pre-automation set up. If account hasn’t been taken of the impact ‘downstream’, then one can foresee the conveyor belt of products backing up and overflowing.

In Procurement this can be a real issue. Accelerating the order-to-invoice process is all very well for purchaser and supplier, but if Accounts Payable are periodically swamped with invoices to be paid, there can be significant impacts on administration overheads and, indeed, cash flow.

Furthermore, an accelerated sourcing process only works if the suppliers are on board, and a super-efficient bid-to-contract process will only work if the company’s attorneys buy in to it.

Thus automation is far from being a matter of “install software, use software, improve efficiency, get ROI”. Get it wrong and it can be a matter of “install software, use software badly, make matters worse, stop using software, can project, start again”.

But get it right and the “automation” program can see dramatic impacts on time to reach savings goals, supplier engagement and performance, and cash flow management downstream.

GEP have produced a white paper on the challenges facing the marriage of convenience between Procurement and Finance which explores these ideas further. You can download it here.

Is It All About The Money?

Money has been at the heart of business since the beginning. But as more start-up businesses take shape, we have to ask, “Is it all about the money?”.

Money

This article was originally published on LinkedIn.

Being at JP Morgan, the annual conference where the worlds of biotech and investment collide, gave me the opportunity to catch up and bump into many colleagues and friends. Everyone had a chock-a-block schedule, trying to squeeze in as many meetings as possible with current and potential partners, and money was a top conversation subject.

Of course money is needed to build and grow businesses, but does it define success? Being in San Francisco and talking to many people over the past week has made me think about purpose. All this talk about money made me wonder if it was really the driver. If it was, I am not sure success would be possible.

One could debate that money equals success or success equals money, but I really believe that it takes a lot more than the desire to make money to be successful.

What Drives Individuals?

For example, I caught up with a CEO that recently made an exceedingly large amount of money, but within just a few days of acquisition is already building another biotech company. I spoke with a VP of sales on his fifth successful startup who is working around the clock to grow yet another company’s revenue.

I met a successful physician that has been developing a product for the past 10 years, with a dream to see it approved and change the standard of care. I met with an investor with a very successful track record, diligently meeting with multiple prospects to identify his best new investments. Even without knowing each individual’s personal situation, I can safely say that the main driver is not money.

So what drives them?

I think it is passion. For some, it’s the rush that comes with seeing businesses grow. For others, it’s a desire to see their idea change the status quo. I can easily identify with that feeling.

I could have been satisfied with Matchbook, my successful and growing nine-year-old consulting business focused on providing procurement and sourcing support to fast-growing small biotech companies. I could have also chosen to be home with my three daughters. Although I have other options, I have chosen to work around the clock for the past 18 months to build tealbook.

Supporting Passion

What drives me to make so many compromises and remain so focused on building this business? It is passion for seeing tealbook come to life and become a market leader in providing supplier information. This passion is supported by many factors, and every crazy entrepreneur has his or her own list.

Here are a few of mine:

  • I believe in the idea: I strongly believe that tealbook can help clients significantly reduce time spent identifying the right suppliers and increasing cost efficiencies.
  • I want to solve the problem: I’ve seen firsthand the challenges of inefficient supplier information while supporting sourcing needs for large number of pharma and biotech companies. There is a solution!
  • I see the market opportunity: So many software companies have focused on developing Procure to Pay solutions and back end financial analytics. But compliance of the tools and user experience has not been done successfully. Technology is only as good as people using it and its data. User experience and compliance is at the top of our list when it comes to gathering and accessing supplier intelligence.
  • I want tealbook to be a market leader: We have developed smart and user friendly technology. I know we can give clients access to supplier information better than anyone else – we have talked to enough people to validate this statement both in the life science industry and beyond. We can own this position and easily become the most used front-end platform to significantly reduce the time spent identifying the right suppliers.
  • I made a commitment: I have made a commitment to myself, clients, suppliers, my team and the rest of the industry. Once I decided to launch tealbook, I made a promise to see it come to life, change the industry and make it a success.

One day, I hope to spend more time with my girls before they get too big. But, I can’t see myself stopping with tealbook. What drives me comes from inside and continues to grow with each interaction and success, small or large.

Although money certainly allows us to properly support our customers, grow our technology, generate more visibility, provide employee security and remain  attractive to potential investors or partners, I strongly believe that if we are truly passionate and motivated about growing a company, money will be an outcome.

You can’t put a price on the exhilaration of success!

ISM & Procurious: Leveraging Social Media in Procurement

Ahead of his keynote address at the Procurious Big Ideas Summit 2016, ISM CEO Tom Derry discusses ISM’s new partnership with Procurious, as well as the power of leveraging social media in procurement.

Leveraging Social Media

ISM and Procurious recently announced a new partnership, as ISM became a Procurious Foundation Partner. This will increase Procurious members’ access to ISM’s highly regarded research, events and educational offerings, from certification programs to the newly launched ISM Mastery Model™. ISM members will also benefit from the rich educational resources and networking opportunities on Procurious.

Leveraging Social Media

Over the last several years, social media has become crucial for connection professionals in all fields — especially procurement and supply chain. I honestly don’t see how anyone can expect to be successful in this day and age without leveraging social media.

Social media gives you access to a broader network than could ever be obtained face-to-face. You have the opportunity to tap into the global repository of procurement knowledge. Why would anyone choose to miss out on this competitive advantage?

Not only that, social media can serve as a news channel providing real-time updates and alerts. How powerful is it that you can be updated on market trends, natural disasters, geopolitical events and much more — all with a tool you keep in your pocket. It’s the agile organisation that survives and thrives in today’s environment, and you can’t be agile if you’re not plugged in to real-time events.

Procurious and ISM

When I first learned of Procurious, I felt it was a no-brainer. Procurious enables the supply management professional to leverage the immediacy of a social network in a in a professionally appropriate medium.

With the focus solely on supply chain, this platform connects professionals working on similar projects and initiatives globally. This adds value in two distinct ways: your building your own knowledge base, but also your personal professional brand.

When I tell colleagues about Procurious, I often hear, “How is it different from LinkedIn?” While there are many similar features, Procurious provides additional advantage for procurement and supply chain professionals. In addition to connecting you globally with those in the field, it gives you the upper hand through education, blogs, event calendars and my favourite — the Discussion board.

Discussions and Communication

I think we have all experienced our work being halted by a roadblock we have not faced before. As procurement professionals, we are often the experts in our organisation, making it feel like this is our mountain to climb alone. Instead of banging our head against the wall, we have somewhere to turn.

Whether you are looking for the right SRM system or a need career advice, the discussion board immediately connects you with others who may have the answer you need. There is strong, practical value in the communication on the discussion boards. One recent post was looking for advice on how to manage stakeholder expectations on procurement lead times.

Professionals from around the globe weighed in with advice on how to communicate the value procurement adds beyond simple considerations of speed and price. It’s just one example of how practitioners can leverage the experience of their peers to facilitate real results.

Looking to the Future

ISM is becoming more engaged with Procurious. We will be launching an ISM group this month. This group will add another place for those connected with ISM to go for networking and and for those new to ISM to discover and connect with us.

I am looking forward to watching the ISM community grow and develop on this platform. I see this being a great place for our members and nonmembers to connect. With more than 50,000 ISM members globally, there is a great opportunity to be had from potential collaboration.

Life Changing Technology to Save You Time

When time is money, making sure you’re spending it on what matters is a key metric to profitability.

Time Saving Tech

Do you know how much time you’re spending on certain tasks? Do you know how your teams are spending their work day? And more importantly, do you know how your finance teams are spending their time?

Where Does Time Go?

APQC, a Texas-based research firm, recently conducted a study of some 832 companies’ finance departments. Using data from APQC’s Open Standards Benchmarking database, they found out what finance teams really get up to at work.

Things like transaction processing, decision support and management activities were all looked at as part of the study and APQC found that no matter how big or small the company was, roughly half of finance teams’ time was spent on transaction processing. Half.

Instasupply-Life-Changing-Tech

Source APQC

In plain English, this means highly paid finance staff spend the time equivalent to Monday AM through to lunchtime on Wednesday making sure invoices are being processed, bills are getting paid and fixed assets are accounted for.

Shifting the Balance

Now, ask a CEO what he’d like to see his finance team doing and he will tell you he’d like them delivering fast, reliable information about the economic implications of specific tactical business moves. When the year is halfway through and performance needs improving, a CEO wants to know the monetary impact of the decisions they plan to make. What the potential revenue and operational implications are when it comes to investing company resources.

When the finance team spends nearly 50 per cent of its time on transactions, plus a few more hours per week going through internal approvals and putting together financial reports, it equals not much time left to offer that critical decision support.

A finance team therefore needs to constantly juggle providing key financial information to support company growth and getting those bills paid. Reducing paperwork and minimising manual labor are an absolute must when it comes to shifting the balance.

Away from Paper-Based Methods

Based on research from bodies such as The Hackett Group, we know that just under 70 per cent of vendor invoices globally are still in paper form. That means someone within the finance department needs to manually enter all of that paper-based data into a computer based program, either straight into the accounting software, or in a spreadsheet first and then into said accounting software. This means there is a hell of a lot of paper clogging up the system, costing time and money in training, execution and management.

Further still, the software in use was generally built circa 1995 and fails to offer transparency on transactions, clarity in reporting or intuitive processes. Since the main aim here is to deal with transactions quickly, in a minimum amount of time, whilst minimising errors, having such software in place is nonsensical.

Finance departments need their working hours back to focus on their actual function in driving companies forward. Understanding costs, revenue streams and operational cost pitfalls is where their true value comes into play. Pushing paper around is a waste of time.

Be Sure to Choose Wisely

As the digital trend has been making its way into B2B (finally), larger companies have pushed for greater finance efficiency and invested resources into implementing digital tools to facilitate electronic information flows. Merely investing in something branded “cloud” though doesn’t mean it will solve all problems.

The choice needs to be made wisely. It needs to be made with the end user in mind. If it seems too complicated, it IS too complicated. And that means your staff won’t use it, or certainly won’t use it properly. You will be buying an Aston Martin, and it will be driven like a Ford.

Smart companies able to recognise the importance of user focused tech will instantly reduce the time spent managing transactions. This will enable them to direct finance talent away from repetitive tasks and back towards company growth.

What could your finance team do with more time?

How to Avoid Procurement Corruption and Fraud: The Fraud Triangle Analysis

When Benjamin Franklin said, “An ounce of prevention is worth a pound of cure,” he was referring to fire prevention, but even so, the saying holds just as true for procurement corruption and fraud prevention.

Procurement Corruption

This article was originally published on Delta Bid.

Donald Cressey is credited with creating the “fraud triangle,” which outlines the theory behind why people commit occupational fraud. Cressey identified the three legs of the fraud triangle as pressure, opportunity, and rationalisation.

The Fraud Triangle

Let’s take a look at steps your organisation can take in order to address these three areas and avoid procurement corruption and fraud.

Pressure

The pressure factor is essentially what motivates someone to commit fraud. Usually the motivation is financial in nature, and falls under one of two categories: personal or professional.

Personal pressure examples:

  • unpaid personal debts
  • desire for status symbols (money, house, car, etc.)
  • inability to pay bills

Professional pressure examples:

  • need to meet productivity targets
  • need to prove financial gains
  • feeling job is at risk

How to mitigate pressure:

1. Adequate compensation – While adequate compensation will depend on the organisation, country, and individual employee, procurement employees should not be at the bottom when it comes to compensation. Procurement professionals, at all levels, require a specific skill set to effectively do their job, and their compensation should reflect the value they bring to the company.

2. Realistic performance KPIs – This requires good communication with all stakeholders. Set KPIs and then review them frequently to make sure your procurement goals are realistic.

3. Adequate procurement budget – One way to avoid procurement corruption and fraud is to make sure your procurement department has sufficient funds for staffing, tools, and training. Being forced to cut corners can quickly lead to unethical decision-making.

4. Company-wide no gift policy – Suppliers often give gifts to procurement as a way to build relationships and show goodwill. Yet, these gifts may make it hard for procurement officers to remain entirely neutral. If Procurement is not allowed to accept gifts, enact the same policy for all departments as a way to reinforce a company-wide ethics policy.

In some parts of the world, it may be difficult to go 100 per cent no gift. If you do decide to allow Procurement to accept certain gifts, such as lunch or small tokens under a specific dollar amount, make sure the policy is crystal clear and communicated to all employees.

5. Recognise employee value – Adequate compensation is one way to recognise employee value, but other signs of appreciation can also go a long way. If your company has a no gift policy, perhaps set aside a portion of the budget for a procurement dinner or event to celebrate when certain objectives are met.

Opportunity

The opportunity to commit fraud has to meet two basic standards: the person must have the technical know-how to take advantage of the system, and the ability to keep it a secret. You can decrease the opportunities for fraud by:

1. Implementing a transparent procurement process

  • Adopt an e-procurement solution – E-procurement software is the best way to make sure your procurement data is transparent and easily accessible for audits. You can also assign permissions within the tool, making it easy to allow top management access to all processes, while also limiting who can add suppliers, change supplier contact information, make awards, etc.
  • Educating your employees about the process and how to identify red flags – While it may be a given buyers within the procurement department understand the sourcing and purchasing process, buyers on the outside may not have such a clear understanding. Anti-fraud measures require all hands on deck.
  • Monitor the data in the system – Implementing e-procurement software is just the first step to a transparent procurement process. You’ll need to continuously monitor the data in your chosen e-procurement solution and the ERP to look for any irregularities.

2. Segment purchasing responsibilities – Divide responsibilities to keep any one person from having too much power over purchasing decisions. You may also find it beneficial to rotate responsibilities on a regular basis, but when you do so, make sure to update any employee permissions in your e-procurement solution. For example, some companies rotate procurement employees between categories to avoid any one person having too much close contact with suppliers.

3. Adopt a four-eyes rule for approvals – Schoolyard bullies use “four-eyes” as an insult, but when avoiding corruption and fraud, the four-eyes strategy is best practice. More eyes on decisions means it’s harder for would-be fraudsters to keep their crimes secret.

4. Perform regular and surprise internal and external audits for all purchases – Audits are not a sign of mistrust; consider them more like a doctor’s check-up. You should hope that everything checks out, but if you note any irregularities, you can take action to straighten them out before significant damage is done.

5. Manage both suppliers and their subcontractors – Your supply chain doesn’t stop with your suppliers; it’s likely they’ve hired subcontractors. The business practices of these subcontractors will reflect on your business. Unfortunately, many companies have learned this the hard way. Your company should have a Supplier Code of Conduct, and signing off on it should be mandatory for all suppliers and their subcontractors.

Rationalisation

Rationalisation is the process of excusing one’s acts and finding ways to justify behaving in a way that you know to be unethical or criminal. It can take a number of forms: an exaggerated belief in one’s value (e.g. I’m entitled to this because I work hard.); a belief in a greater good (e.g. I’m doing this for my family.); dissatisfaction with the company (The company is cheating others, so I can cheat the company.); or comparisons with others (Everyone else has nice things. Why can’t I?).

How to avoid the pitfalls of rationalisation:

1. Hire ethical employees – This one looks like a no-brainer, but it’s easier said than done. However, if ethics are important to you (as they should be), they need to be discussed from the very first interview. Research your potential employees like you research potential suppliers. Step away if anything looks fishy.

2. Model ethical behaviour at the top and reinforce it through company-wide policy – It’s all about company culture. How can you expect employees low down on the ladder to behave ethically if the top management is constantly cutting corners and making ethically dubious decisions? Don’t fall into a “do as I say, not as I do” mindset. Give your employees a good model to follow.

3. Adopt a zero tolerance policy for fraud and corruption – There’s the carrot, and then there’s the stick. Just as you would outline expected behaviour, so, too, should you outline punishments for breaking the rules. Don’t make idle threats. If you have a zero tolerance policy, then it should be zero tolerance. If you’re not prepared to follow through, adjust your policy to reflect the true consequences for fraudulent actions.

Part of procurement corruption and fraud prevention should be based on the realisation that, yes, it can happen to your organisation. No company is immune.

However, those companies with the lowest cases of fraud and corruption have taken steps to prevent it before it happens. If you’re waiting for a big scandal to break before mitigating this risk, then you’re already too late.

South African Public Procurement – A Work in Progress

Despite some leaps forward in recent years, South African public procurement is still suffering from the same issues.

South African Public Procurement

“Despite the reform processes in public procurement and the employment of Supply Chain Management (SCM) as a strategic tool, there are predicaments in South African public procurement practices”.

This was one of the observations in a report by two leading academics at the University of South Africa in 2012. They noted, “For example, there is non-compliance with procurement and SCM-related legislation and policies as well as tender irregularities.”

You could say that not a lot has changed, South African public procurement still has some predicaments.

The Last Few Years

Since 2012, we have seen the appointment of a Chief Procurement Officer, Kenneth Brown, who is responsible for overseeing the entire SCM operation. His role is to ensure that the procurement of goods, services and construction works is fair, equitable, transparent, competitive and cost effective, and in line with the Constitution and all relevant legislation.

This in itself is a big ask as there are many laws, guidelines and regulations to adhere to. His portfolio includes central and provincial governments, municipalities and state-owned enterprises.

A new initiative is an e-tender portal and the creation of a centralised database of approved suppliers. This is a noble effort to fight corruption and make government procurement more efficient and cost-effective. The system, where all tenders are advertised, is also designed to electronically verify a supplier’s tax and black employment equity status, as well as to uncover any government employee attempting to do business with the state.

In the 2014-2015 tax year, the public sector spent >R500-billion on goods, services and infrastructure. The Government itself has admitted that at least R30-billion of this was lost to corruption. In 2015 the Treasury took a bold step of undertaking a Supply Chain Management Review on the status of SCM in South Africa and found it wanting.  This was the first attempt at assessing the situation since 2004.

The 2015 Supply Chain Management Review

The Treasury should receive kudos for highlighting its own shortcomings and imperfections, and providing some glimmer of hope of improvement.

The Review acknowledged that:

  • SCM across South Africa is highly fragmented. This makes it difficult for government to obtain maximum value from the purchasing of goods and services.
  • It needs to improve skills, processes and systems which are critical for a well-functioning SCM system.
  • It is dogged by “constant allegations of corruption and inefficiency”.
  • Key problems are: inexperienced leaders, high staff turnover rates, confusion about roles and responsibilities, political interference and the red tape for small and medium businesses.

So what is the plan?  

The big plan is to replace all the legacy systems, more than 30, with just one. This will be an integrated financial management system (IFMS) which will include the central supplier database. This will make data mining possible, and will provide more transparency into bid awards, a concept that has not been well understood in government circles up to now.

The intention is to centralise government contracts for categories such as:

  • Banking services;
  • Information Communication Technology (ICT) services;
  • Infrastructure;
  • Consulting services;
  • Security services;
  • Air travel and accommodation;
  • School textbooks and stationery;
  • Healthcare equipment; and
  • Leased buildings.

Technology will take us part of the way

Investment in technology, especially an e-procurement solution, has the potential to improve SCM efficiency and effectiveness considerably. Currently, the different systems result in fragmented and unreliable data, inconsistent processes, varying compliance levels and ineffective results.

It is not straightforward though. South Africa has a complex and unique system of preferential procurement policies to protect and advance previously disadvantaged people. These variables have to be integrated into any decision making software.

The many challenges can be grouped into these categories:

  • managerial, compliance and monitoring issues
  • lack of knowledge, skills and capacity
  • inadequate control systems
  • fraud and corruption
  • fragmented spend and lack of transparency

Comparisons with other countries

South Africa is not alone in its aspirations to do better. The UK has just implemented the Public Contracts Regulations which adds another dimension and complexity to Government procurement in UK, and brings practice into line with European Union regulations. One objective is to make procurement across EU countries easier and increase transparency.

A bill was introduced recently to promote the appointment of a Chief Procurement Officer for the United States. However, it was not passed into law due to the start-up costs, despite projected savings of 10 times the investment. It just goes to show that even developed markets have their problems.

Dynamic Purchasing Systems and the Death of Frameworks

Will the use of Dynamic Purchasing Systems grow as a result of amendments to EU Procurement Directives? And will they provide a solution to problems of both buyers and suppliers?

Dynamic Purchasing Systems

As procurement professionals we are familiar with the use of frameworks as a contracting mechanism. The 2015 amendments to the EU Procurement Directives have sown the seeds of change, but will this result in a growth in the use of Dynamic Purchasing Systems (DPS) and a decline in framework agreements? Could DPS be the panacea to the problems of both buyers and suppliers?

Dynamic Purchasing Systems are a relatively marginalised process and have been under used due to their complexity. The up-dated EU Regulations have seen four changes around the use of the DPS, which has simplified the process.

Benefits

Use of a Dynamic Purchasing System seems to offer several benefits and, as we operate in an ever-changing environment, it seems perfectly sensible to adopt increasingly dynamic procurement methods. Many of these benefits could lead to savings and supplier growth, which are high priorities on the government’s agenda.

  • Gives Suppliers Another Chance

DPS gives suppliers another bite of the public sector cherry if at first they are unsuccessful. Many contractors are not poor suppliers, they are poor tenderers. The use of frameworks unnecessarily locks these suppliers out of the market for up to four years. DPS offers a solution where if they don’t succeed at first they can try, try, try again.

  • Increased Competition & Competitive Pricing

As the mix and number of suppliers on the Dynamic Purchasing Systems evolves, it is likely that this will lead to an increase in competition. A report by PWC in 2011 noted that ‘Dynamic Purchasing Systems are the most successful type of procedure in terms of attracting a large number of bidders’.

Direct award also isn’t permitted, so the decision on best value can only be decided at tender stage. This is likely to result in more competitive pricing from suppliers.

  • Development of Long-Term Relationships

A dynamic purchasing system can now run for more than four years. A review of ‘live’ Dynamic Purchasing Systems found examples with a proposed duration of a decade! As austerity measures remain in place, and procurement professionals are constantly required to do more with less, DPS could be a solution to expensive re-procurement exercises.

It has been said that the EU regulations can make developing long-term, value generating supplier relationships difficult due to strict time limits on contracts, and the mandatory competition required over the threshold values. However, if suppliers are no longer looking over their shoulder at a looming re-procurement, DPS could support the development of these relationships with key suppliers.

  • Fully Electronic

As DPS is conducted solely through electronic means, the various advantages of e-procurement are present here. However, it is imperative that the infrastructure is there to support the process. The maturity of systems and the change in the EU regulations may serve to create an environment where DPS can flourish.

Current systems can also be adapted to run a DPS so there should be no significant change management or training required unless new systems are adopted.

  • Bridge Talent Gap

Currently public sector purchasing is experiencing a talent gap. Greater use of DPS could go some way towards alleviating this, as it could potentially reduce the number of full EU processes an organisation is required to undertake. Further efficiencies could be made if dynamic purchasing systems were used as part of collaborative or consortium purchasing.

  • Spreading & Minimising Risk

The public sector has been branded as a risk averse creature. Therefore, one may imagine that the use of a variant on a procurement procedure may strike fear into the hearts of procurement professionals. Public sector professionals are becoming far more innovative, but the risk averse nature of the public sector could be a reason why, despite the simplification and flexibilities added, the DPS may remain under utilised.

Risk of challenge to a procurement is never far from the minds of  procurement officers. One wonders that if suppliers knew that they would be able to re-apply to join the DPS, whether this would reduce the number of unsubstantiated challenges that contracting authorities have to fend off.

Finally, a DPS is likely to have more suppliers awarded into the system than a framework agreement. This would serve to spread the risk for authorities.

Drawbacks

Conversely, there are a number of reasons why the changes in regulations may not result in an increase in the use of DPS.

  • Administration of Suppliers

Although there are efficiency savings found in not having to re-procure every four years, these could be eroded by the fact that buyers may have a regular stream of suppliers requesting to be accepted onto the DPS. This is likely to be exacerbated in certain markets and by the fact that documents have to be evaluated within ten working days.

The authority also has no possibility of restricting the maximum number of operators. Constant applications by serial tenderers could be mitigated by providing detailed feedback on the reasons why they were unsuccessful.

  • Risk of Obsolescence

If a DPS has been running for too long it may become obsolete. Over the course of several years the requirements of an authority may change significantly. However this could be overcome by good contract and category management as well as an annual review.

  • Up-Front Costs

There are likely to be additional costs the first time that an authority uses this process in the form of e-systems development, training and preparing the market. Procurement policies and internal processes will also need to be up-dated. However, removing the four year limit should go some way towards alleviating these costs, as they will be spread over a longer contract term. Up-take may also depend on how DPS is viewed by internal customers.

Have you worked with a Dynamic Purchasing System in public sector procurement? What were your thoughts? If you’re looking for evidence of benefits in DPS use, make sure you keep a look out for the second article in this series.