Best Practice – The Holy Grail of Procurement

Another of the presentations we attended at eWorld on March 1st came from Graham Bell and Peter Stediford, both client engagement managers at Capita Integrated Business Solutions. Capita is a provider of financial management software to service-oriented organisations, helping realise cost savings and improve operational effectiveness. (With £600m revenue and 4.5K employees, it’s the second largest in the UK.)

How To Achieve Best Practice in Procurement was the presentation. Best Practice – the holy grail of Procurement, they said. Maybe that would have been a more apt title for the presentation; they did offer that while this title is broad, all would become clear!

They define ‘better procurement’ as being able to deliver professional procurement to organisations that achieves or over-achieves the KPIs you set for yourself. Delivering services at reduced cost year on year.

One of the reasons we strive for ‘better procurement’ is to avoid or mitigate the risk of fraud. The University of Portsmouth produces an annual fraud indicator. The 2016 report found that the annual cost of fraud in the UK is around £193bn per year. And it’s the private sector where the majority is taking place (around 70%).

The cost of loss in the larger companies is as high as £144bn a year, and this is the saddest part: by far the biggest source of fraud relates to procurement – an enormous £127bn. The P2P cycle is vulnerable: it is open to the submission of false invoices, the awarding of contracts in exchange for bribes, and so on. This type of fraud represents the second most significant economic crime in the UK after tax evasion. So it’s a BIG topic.

The nature of Procurement makes it susceptible to fraud: the sheer size of the expenditure it accounts for, the volume and low value of transactions, the way people work in silos (so whoever buys may well not be the same person who raises the order or pays for goods) and the separation of functions makes it ripe for abuse. Even the roles in Procurement lend themselves to subjectivism, a buyer may have a particular leniency towards a particular supplier. You get the picture.

But what is common to all involved in this picture is lack of transparency and a breakdown in control of processes. When something, an expensive item breaks, an employee often can raise their own requisition, and there’s no limit on expenditure, no control. So a P2P system will enable that control (along with bringing all the other benefits we know about – audit trail, and limiting exposure to risk).

There are of course precautionary steps you can take, as noted by CIPS. Always get three quotes, sounds simple but … you always think you’ve tested the market significantly. Make sure everything goes through the sourcing portal: it doesn’t matter how small the item. Check orders are valid: if it’s not in the eProcurement system, hasn’t come from a verified catalogue, been signed off – you need to ask why. You can set up alerts about multiple or duplicate orders. Set up a PO system – and use it, log everything! Check supplier details: systems can control who sees which bits of information – like bank details. Have a full audit trail: that speaks for itself. Make employees advocates of the process: choose those who are not afraid to communicate.

With 71% of CPOs saying the feel they lack the skills to people manage and track, and a third of organisations saying they don’t have the tools to do audit metrics, particularly on fraud (src: Deloitte), chances are it’s happening in your organisation. So it makes sense to partner with a tech organisation – a leader in the procurement space.

In their recent survey of c-suite and department managers of finance and procurement, Capita found that only 29% of the organisations had analytics tools. The top two challenges for Procurement came out as a) they don’t have the tools b) they don’t have mobile access for quick, on-the-go actions linked to the live system.

There was a run through of the Capita system and how it can address these – but you can read that on the website. Important challenges to note are that: there is a gap between the CEO and CFO on who should own enterprise reporting.  Huge projects can be so big it’s hard to get the right data out. Be clear on what it is you are really measuring. Start with the KPIs and work backwards.

So, control, real time analytics, fraud prevention tools and efficiency gains through mobile working are the 'holy grail' of best practice procurement. Clean, accurate and easily retrievable data is key, because improvement is often masked by people constantly fixing the data.

 

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