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Beware - Your purchasing might be incongruent and not novel

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Often the actual state of procurement functions is dismal and under the radar of usual KPIs and CPIs which don't have adequate entropy to make meaningful business assessment.


Ask any CPO (Chief purchasing officer) or their team members "how is your function doing" and most likely a pat/safe reply would come. "We are doing fine although some usual challenges exist". Most will dole out supporting numbers like savings delivered, spend under management, cost of procurement etc. relative to internal targets or benchmarks. More often than not, these statistics would show a hunky dory or novel (all in green or yellow) state. However, often the actual state is dismal and under the radar of such usual KPIs and CPIs which don't have adequate entropy to make meaningful business assessment. I call this state as "incongruent and not novel". This refers to a state and on-ground reality that most of the purchasing functions, their stakeholders and often suppliers are not congruent with purchasing and other intra-organization mandates. On the other hand, there is no composite measure defined ever or exists which can report the extent of such congruency.  Here are top 3 incongruences and typical "someone" that you may serendipitously find in your firms. "Someone", please excuse me for candour.

  1. A C level executive calls a supplier he knows, finalizes techno-commercial requirements and forwards an email with supporting files etc. to procurement to "raise a PO as per process". The organization has a policy to route such spend through preferred supplier(s) only while this supplier is new and yet to be empanelled. Procurement, knowing policy well and that there is no exception process allowed, creates an exception approval note and get couple of other senior folks to approve this. PO goes out as requested. "Someone" - Chief Training/HRD Officers, Chief Financial Officers, Chief Operations Managers and their deputies.
  2. A new PO is released by procurement on same supplier for same commodity at higher rates following specified procurement process when an open PO was available on same supplier for same commodity had sufficient balance quantity at lower rates. Such scenario is not described by any procurement policy or process. "Someone" - Sourcing managers, procurement managers.
  3. A stakeholder unduly narrows or broadens specifications to qualify sole supplier stakeholder wants to work with, while it was possible to create standard and/or universal specifications and run a competitive bid. "Someone" - Chief Marketing Officers, Chief Risk Officers and their deputies.

While I can go on and on, topic is too big to be congruent with space of a blog. You let me know your views and how congruent or novel your firm's purchasing practices are.

Comments

Thanks CK, Very valid points. Often the policies are bent or broken to accommodate "Someones" preferences. These supplier preferences can either be due to perceived emotional connect with the supplier or resistance to change to the more logical option. Either ways procurement organizations do not often challenge these to the full possible extent and many times give in to the “Someones” wishes. These incongruences can never be fully measured as single metric, however may be there are a few set of indicators that can lead to an estimated guess. Some of the indicators can include any of the below

1. Percentage of spend routed through non preferred suppliers
2. % Price fluctuations on existing price contracts
3. % of sole source suppliers
4. Number and frequency of transactions with a supplier below the approval limit

While there may not be any benchmarks around these, many such metrics/Indicators should give an idea of the incongruence within a system. I think it’s about time that at least the so called Top performers in the procurement space, adapt such indicators in their dashboard to drive a tighter ship. Thanks for your thoughts, look forward to read further

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