Is your procurement governance robust enough to mitigate risks?

Why is process governance crucial in procurement?

Procurement impacts around 30% of a service company’s revenue and at least 50% of a manufacturing company’s revenue (Kearney).

  • Legal/ethical compliance
  • Value for money
  • Competitive supply chain

When having procurement policies alone is not enough

Most procurement departments have policies and guidelines around how procurement processes should run. In cases where the organisation is a government body or operates in a highly regulated industry, there are often multiple policies, codes of practice and layers of governance to observe.

Adapted from NSW Independent Commission Against Corruption (ICAC) report 2018

Procurement process & governance health check

Below is a list of questions that management should go through to assess the effectiveness of their procurement governance:

  • Are all procurement decisions defensible?
  • Do our risk mitigation activities align with the organization’s key risks?
  • Are processes and policies adhered to at all times?
  • Is it possible to trace accountability?
  • Do we have a single source of truth at all times?
  • Do we have loopholes where information can be distorted?
  • Do we have the right people approving/verifying information?
  • Do we strike the right balance between thoroughness and the need for speed when dealing with external parties?
  • Do we have visibility into process bottlenecks and workflows?
  • Are processes optimised for efficiency, or can they be automated?

The shift towards a hybrid procurement model

After periods of decentralising and centralising, maturing procurement organisations may find themselves heading towards the next phase of decentralisation, with many cutting-edge organisations adopting the hybrid model.

Procurement journey across different operating models. Based on KPMG research.

What is the procurement hybrid model?

Also known as “project-led, centrally enabled,” this procurement operating model aims to combine the strengths ofboth centralised and decentralised models.

  • A small to medium-sized central function responsible for coordinating company-wide procurement strategies, policies, practices and capabilities.
  • The central team also segments buying categories to determine those which should be managed centrally, or those where several departments/project teams may band together under the activities of a lead department/team (i.e. lead-site buying).
  • Individual departments or project teams still conduct unique/local procurement activities for their respective areas.

Why are mature organisations transitioning towards this model?

Successful implementation of the hybrid model can result in “the best of both worlds”. For instance, some expected benefits can be:

  • Ensuring overarching accountability and oversight across all procurement activities — like a centralised model
  • Understanding local regulatory nuances — like a decentralised model

The implications for process governance

Moving towards a decentralising period means procurement will need to serve two “masters”: end users and compliance/governance.

  • Speed vs. Procedural compliance
  • Ease of conducting procurement activities vs. Ensuring proper oversight by different stakeholders
  • Engaging the most convenient supplier option vs. Expanding the supplier base to meet diversity quotas

Technology as an enabler for procurement process governance

Such a conundrum mentioned above is often exacerbated by using manual or inefficient systems to conduct procurement activities.

A procurement system for non-procurement teams

The right tool needs to accommodate procurement activities conducted by non-procurement personnel, such as operationsor compliance staff.

  • Audit trail: mitigate compliance risks, ensure process transparency/accountability without onerous recordkeeping
  • Automated approval and evaluation workflows: ensure accountability and efficiency while minimising procurement risks
  • Comprehensive and up-to-date supplier panel arrangements: ensure compliance and value for money
  • Vendor on-boarding and qualification: user-friendly processes without sacrificing compliance

In summary

Having procurement policies and guides is as good as it gets in theory. With mature organisations transitioning towards a more decentralised procurement structure, they need to ensure their governance framework is robust enough to mitigate risks.

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Felix

Felix

Enterprise marketplace platform that connects orgs & their supply chains. www.felix.net