Driving Savings Realisation in IT Sourcing

Hot Topic

We are delighted to feature a guest post on our Hot Topic for October -- IT Procurement -- from Santosh Reddy of GEP, whose Knowledge Bank is a rich and varied source of procurement thinking. 

IT Sourcing has gained prominence over the past few decades and for companies focused on services, it accounts for a third to a half of their overall spend. For most companies in financial, professional services, there are larger teams dedicated to it than for all the other categories combined.

Yet, it remains a challenge: IT still has not reached the same maturity as the direct categories in a manufacturing environment. It cannot be planned through an MRP. There are no clear one-size-fits-all solutions, yet turnkey projects are not seen as the best method. Every requirement originates with a request, quite often one that ends up as a maverick purchase if not controlled.

It is fair to say that savings leakage is still very high in IT. So how can companies execute strategic sourcing, and at the end of the year, realise their savings as well and not see too many purchase orders cut for non-contracted vendors? This article highlights some of the best practices observed, learnt and implemented over the past few years.

Purchasing Policy: Nothing beats rules. If there is a policy that dictates who to buy from, when, at what cost, and so on, it is very difficult for requesters to circumvent them. Complicate it with the need for additional approvals, providing mandatory explanations and such, and they fall in line in short order and will buy from prescribed sources.

But policy itself is like artillery, no good without infantry support to enable and enforce it.

IT Products - Master Data cataloguing: Why is the world of manufacturing so streamlined and automated when it comes to procurement planning and execution? Because the items to be purchased have an item master reference to go by. While it is difficult to do the same with all IT products and services, the more commonly procured ones should be added into the item catalogue. This is particularly true for IT products.

Item catalogues define a means to track, report and measure compliance. In addition, it becomes possible to enforce certain conditions, so the item cannot be procured from any other vendor if it is under contract with one.

Punchout Catalogues: Yet, there comes a tipping point with IT peripherals where it is simply meaningless to create an item for a mouse or memory devices. A punchout catalogue into the vendor’s site avoids the need for item creation on your ERP system, yet continues to provide the same controls as a standard item would. This has the added benefit of having the vendor perform catalogue management on your behalf, while passing on all information needed for the purchase requests/order forms for reporting and tracking.

IT Services – Checklist-driven procurement: the mother of maverick spend. Driven by overarching MSAs, supported by SOWs, and all documents based on loose interpretation of what falls within the scope of the contract and what ‘can be’ taken to an uncontracted service provider. The problem lies with the ‘can be.’ If it can be, it will be taken to a non-approved, non-contracted service provider.

Dealing with services is a lot more about questioning the need for it, and questioning the process in arriving at their choice of service provider. Ask the buyer “Why,” and put controls in place to auto-direct the purchase request/order to additional layers of approval based on their response. If the check-list is detailed enough, it will ensure the buyers do their research into approved service providers and utilise existing sources than seek out new sources, unless they are getting a better offer.

Internal Audit: I am a big fan of them. They are after documentation, reasoning, enforcement and play the internal police role. And if they are strongly meaningful, the simplest of the policy can still yield better results than a lengthy complex policy. For more details on how Internal Audit can play a role, read “Why Procurement Can Benefit from Working with Internal Audit.”

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