Is procurement one of the most misunderstood and underestimated areas of business? Surely we’re essentially talking about buying things; yet even the word “procurement” makes the process sound more complicated than it needs to be.
All organisations, however big or small should have a procurement policy; a statement defining what they will and won’t buy, how they’ll buy it and from whom. In many organisations the policy will be made up of unwritten rules that everyone is aware of that no one would contravene but the employees and management could do better if they consciously sat down and defined the policy. In some organisations the procurement policy will be limited to doing a credit check on a potential supplier. That’s a good start but there’s so much more that could improve the procurement process.
The process of defining your organisation’s procurement policy should involve getting together the people who make buying decisions and deciding on what are the important criteria for your organisation. There will be some criteria that should be generic to all organisations. Sandy Duncan MCIPS, Head of EMS Product Development at Santia Consulting Ltd, defines three sets of criteria against which you should test suppliers:
1. Are the suppliers cowboys and would you let them through the door let alone do business with them? You need to establish whether suppliers comply with regulations and standards as a baseline criteria.
2. Are the suppliers financially sound? Are they going to be around to fulfil your contract and beyond?
3. Once the baseline criteria have been established, you need to make sure that the supplier you do business with is the best performer out of the competition.
However, some criteria used for testing suppliers will differ significantly between organisations. For example for some organisations the main deciding factor will be price. For others price will be important used in conjunction with a quality standard. For some organisations, price and quality will be tempered with a commitment to fair trade or sustainable and green procurement principles.
The damage that can be caused to a business by doing business with the wrong supplier can’t be underestimated. The wrong supplier could mean the dodgy supplier who acts in an unscrupulous manner, the supplier who goes out of business before fulfilling the contract, the supplier who simply can’t keep up with day to day quality and performance standards. All of these outcomes could be disastrous for your business.
Once you have involved the people from across your organisation who make buying decisions and decided on what are the important criteria for your organisation in procurement, you need to implement the criteria. This might be one of the hardest parts of any procurement policy in an organisation as it involves a cultural change for many employees. Employees might have been used to buying whenever they wanted from whomever they wanted. However, employees need to be persuaded that channelling purchases through a predefined process will save the organisation time, money and could ultimately save the organisation’s reputation one day.