The 7 Deadly Sins of Procurement

Over more than a decade of helping businesses with procurement we have come across some common themes when talking with Chief Executives, Finance Directors and Chief Financial Officers of our clients. They were all aware the issues existed and that they were not delivering quantifiable results in a consistent manner. We hope that when you read this you will realise that some of the challenges you face are not unique to your organisation and that there is a professional, positive solution available to you that will deliver sustainable benefits to your company.

Sin 1 – Not Checking Invoices

Some people say that Tendering is the easy bit! How confident are you that your colleagues check prices when authorising invoices?

Even with automated purchase order matching there will always be exceptions and our research shows that, unmanaged, this can be up to 47% of spend in certain categories.

As we charge a % of savings for our service we want to ensure that you pay the correct price and include invoice checking as part of our service. Some clients even ask us to authorise their invoices.

Sin 2 – Inaccurate Accruals

Are your accruals accurately calculated using the last bill and accurate usage/consumption since that time. If not then be worried. One of our clients used to work on the basis of a best guess from their head of finance! Inaccurate accruals cause surprises and no one likes that. With our experience we can design systems to help you to minimise the surprises resulting from inaccurate accruals.

Sin 3 – Not serving timely Terminations

Do you know when all your overhead contracts expire and when notice needs to be served? Often individual stakeholders are aware of the contracts in their area of operation, but our experience is that rarely is that information readily accessible or shared across the business. If you want to stay with the incumbent supplier how do you serve notice without unsettling the existing trading relationship? These are major concerns which often result in contracts rolling over year to year but can be avoided by using simple, off the shelf software solutions with or without workflow.

Sin 4 – Poor Tendering

OK, so you’ve terminated. Now what? Is whoever’s negotiating taking a holistic view of your business and all the stakeholders who are affected? Our experience is that this rarely happens leading to trading arrangements that are not optimal for the buying organisation. Simply laying out all of the requirements at the outset – products, service, payment terms and invoicing method – makes for a good tender process and gives a professional introduction to potentially new trading partners.

Sin 5 – Buying on Price alone

Cheapest is not best. Best value depends on what you value as a business and in our experience every business is different. What YOU value needs to be made clear to all suppliers at the outset so that they have the opportunity to provide relevant services and dovetail in to your supply chain, embracing your corporate ethos. We work with stakeholders to produce scorecards & rank the companies who bid. This makes for a transparent process and delivers outstanding results.

Sin 6 – Contract non Compliance

So, you’ve got all these great contracts in place but internal colleagues are paying lip service so the majority of purchases are not from the agreed list and the buyer is off on a new project because this ones been put to bed for 2 years now it’s been signed. Regular supplier meetings are key to knowing what’s going on as are internal P&L sweeps and we do both. We can do them in isolation or with clients present – we prefer the latter but understand that it’s just not always possible. There are no short cuts to making sure that the process works and that you are indeed getting “best in class” – attention to detail throughout the process is key, even after entering in to new relationships.

Sin 7 – Not managing Core Spend

In some spend categories it’s very important to monitor purchases to ensure that you are making savings and your supplier is making money and so still values your business. We know the splits relevant to each sector and work with suppliers to ensure that the relationship is win/win. Too much non core and the supplier is making too much money and your savings aren’t what was forecasted; too much core and the supplier can’t afford to service your business to the SLAs that have been agreed. Co-operation and partnership are key to stable, long term supply relationships and in our experience that gives you stability – The Procurement Group help to facilitate that by ensuring the core/non core split works for both you and the supplier.

If you’re a Sinner and your annual overhead spend is >£500K
contact us for a confessional

e: [email protected] t: 0207 287 2333

The Procurement Group

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