Spend Matters welcomes another guest post from Becky Partida of APQC.
In an effort to standardize and consolidate procurement efforts, many organizations have established shared services centers that manage purchasing for multiple departments or the organization as a whole. According to APQC’s Open Standards Benchmarking in procurement, 68 percent of participating organizations have initiated procurement shared services programs and 13 percent plan to start these programs in the next two years.
To determine the potential effects of a shared services program on the procurement function, APQC compared the performance of organizations with such programs against the performance of organizations without them with regard to specific measures. The results of the analysis indicate that organizations with procurement shared services centers have faster purchase order processing but a greater volume of maverick purchasing.
APQC’s data shows that organizations with procurement shared services programs need less time to place purchase orders. As the figure below illustrates, at the median, organizations with shared services centers take less than one business day to place a purchase order, and organizations without shared services programs take 1.5 business days. This can quickly add up to a significant amount of employee time devoted to placing purchase orders.
The faster performance achieved by organizations with procurement shared services centers could be related to standardized and more thorough procurement processes. Procurement center staff vet suppliers and establish close relationships with core providers, which means that the organization can issue purchase orders to those suppliers at a faster rate. Having a centralized procurement function across business units also means that orders can be combined. If multiple departments want to purchase products that can be sourced from a single supplier, the shared services center can place one order for all the departments. This can lead to faster processing than would have been achieved if separate orders were issued by the various departments.
Despite the fact that they need less time to place a purchase order, organizations with procurement shared services centers have slightly more maverick purchasing than organizations without these centers. At the median, they make 1 percent of their annual purchases via maverick purchasing, whereas organizations without shared services centers make only 0.2 percent of their purchases via maverick spending.
These results should motivate organizations with procurement shared services centers to take a close look at these programs. To ensure they are getting the maximum benefit, they should consider the following:
- Are employees intimidated by having another business unit handle all purchasing?
- Are the procurement mechanisms in place viewed by employees as too complicated to use?
- Have employees received adequate training on how to use the procurement systems and make purchases through the shared services center?
By doing some research into why employees bypass procurement shared services centers in favor of maverick purchasing, organizations can address employee concerns and improve procurement performance.
For procurement shared services centers to provide value to the enterprise, they should make purchasing easier for employees in the other business units and provide the organization with faster, more cost effective procurement than would have been achieved through multiple purchasing groups. Having formal procurement processes and a centralized group of purchasers should not be intimidating to employees or make purchasing unnecessarily complicated. If an organization has created a shared services center that employees do not want to use, it will see little or no benefit.