How to Define Procurement

What’s the best way to define Procurement?

Procurement is the business management function that ensures identification, sourcing, access and management of the external resources that an organisation needs or may need to fulfil its strategic objectives”.

It’s important to distinguish between purchasing and procurement because the term can be used interchangeably by people outside of the profession.

Purchasing tends to be more basic and involves a non-strategic team or member of staff to buy goods and services for an organisation. A basic purchasing organisation may even work from paper PO’s to raise an order and the team is more likely to be involved in buying straight forward commodities with some minor negotiation to get the best prices.

Procurement, on the other hand, is a more developed method of buying goods and services for the organisation by selecting vendors using a formal selection process such as an RFX.

The procurement function will acquire all source the goods and services on an organisation cross-functional level. Some procurement functions can still be tactical i.e. they use tendering for their procurement but they may not go beyond tactics and be a strategic partner to the organisation.

If done well procurement’s position can be elevated in an organisation and form the fabric or core of their commercial activity.

A good procurement person needs to understand the business objectives and listen to their stakeholders and really understand what the company stands for. Other departments want to save money and use their budget wisely but this is not the number one driving force. Therefore the procurement manager must embrace the business model and place realising the goals of the organisation as their number one objective.

Being a true business partner means that you need to add value, and you can do this by being commercial. It is your role to know about the market not just on the supply side but who are our customers, why do they support us and what part of our story do they identify with. On the flip side who are suppliers, what do they want and why do they believe that working with us is a win-win situation.

As a function do you know what your strengths and weaknesses are? The perception of the function can make or break strategic alliances, therefore you need to work on elevating the profile of the function as being big picture rather than purely focused on cost cutting.

The procurement function can add value to the bottom line, the function is designed to bring commercial acumen to the business, to balance governance with flexibility and to ensure that the organisation can achieve optimum value for money.

Read the blog to understand more about how to Define Procurement.

Framework Agreement Definition

Framework Agreements explained in nutshell

A framework agreement is a contract where there is no guarantee of any commitment to spend any money with one or more suppliers. Terms and conditions under which specific purchases (call-offs) can be made throughout the term of the agreement. In most cases itself is not a contract, though users should beware that it is possible to have a framework contract.

The maximum term is four years and call off’s by either direct award or mini competition can be done in this period. Best practice is to not call of beyond 12 months of  expiry because after the framework has expired there is higher risk of relying on terms that are not current. The call off contract itself can be supplemented by specific terms required by the organisation. These are not expected to be major boilerplate terms.

Buyers will clearly state in the contract notice if they are intending to set up a framework agreement.  Currently if this is over the OJEU threshold this needs to be advertised in OJEU.

Below we have identified the main types of Framework Agreements

Single Supplier- The contracting authority calls off a contract with a single supplier and can refine the requirements and supplementary terms for each call off.

Multi- Supplier

A multi Supplier framework will have several suppliers. In addition there should be clear instructions in the form of a buyers guide on how contracts can be called off i.e. whether if it’s based on ranking, desktop exercise for direct award or further mini competition.

What if I want to award to a single supplier? What are the rules

Within a single supplier framework, any call-off contracts will be based on the terms laid down in the framework agreement. Buyers may on occasion consult the supplier asking them to supplement the tender as necessary, but this must not result in the inclusion of terms that are substantially amended from the terms laid down in the original agreement.

Can I award to my favourite supplier if there is more than one?

A buyers guide is normally included. Check the information to see if a direct award is permissible. The guide will explain if a ranking system is in place. If there is no ranking you may need to do a desktop exercise to calculate the MEAT criteria. Suppliers  have gone through a tender process to be on the framework but they understand that this is not a guarantee of business – they will still have to compete and be successful in mini-competitions. Prices in a mini competition can only be lower than the framework price.

Framework Lots

If it is your intention to divide your framework into lots, you must indicate if it’s permissible to tender for more than one lot, or alternatively if you allow for the same supplier to bid for multiple lots this should be provided in the tender documents.

What Criteria do I use for a mini competition?

The mini competition must be awarded using the same criteria applied in the framework agreement. You can update the criteria to make it more precise.

 

Procurement Competency Skills

procurement competency

Commodity and Supply Chain  Profiling
As a good procurement manager it’s important to have the skill to analyse the current characteristics and the future potential value to be derived from markets, commodities, suppliers, technology, etc, to help you inform your procurement strategy development, and options appraisal.  Commodity profiling will allow the organisation to understand available commodities, prices, availability, design constructs and overall market and supply chain capability and potential to assisting decision making on priority spend.
Procurement adds value by enabling an organisation to establish a full understanding of the potential value to be derived from commodities and/or markets supporting decision making on commodities, consolidation  of commodity spend, availability of commodities and associated market risks involved in their acquisition.
Reaching the top of your professional field will see you becoming more accountable for the development of very complex cross-cutting commercial activity (including identification of appropriate commodity strategies), seeking opportunities for the organisation to derive value for money nationally, by creating, developing and managing markets, leveraging opportunities for consolidated spend on a local and national level and ensuring risks are identified and mitigated in the process.

At the top of your career you will re responsible for managing escalation of issues, challenges and significant risks associated with commodity strategies.

The best procurement managers will:
Understand, analyse and interpret historical spend patterns, contract compliance, price variations, costs, competitiveness and sources of spend in order to identify opportunities of consolidated cost savings.
The best procurement managers will:

Lead and promote  good practice policies to drive change in approaches to cost savings, working  collaboratively and pushing out changes widely across the organisation.

Ensure that there is a strategic application of  a range of complex spend methodologies using contemporary techniques to achieving improved spending, value for money and return on investment nationally.

Encourage collaboration between all players in the supply chain to explore spend and opportunities for cost savings.

Your role is to achieve competitive solutions and achieves improved outcomes.

Apply cost driver analysis across very complex categories of spend to support assessment of cost and value.

Market and Supply Chain Analysis is the skill to interpret a broad understanding of the impact of a wide range of market factors and how they impact upon supply, demand, capability, flexibility and economic variants arising in the market place.
The best in class procurement will:

Create a culture within the Organisation which encourages output specifications,  is receptive to Supply Chain Innovation and champions strategies to increase the Supply Chain’s value contribution to improved outcomes.

Influence design and supply chain development and cost/value consciousness through early customer/client engagement in strategy and specification development.

Set challenges to reduce identified cost drivers internally and externally, aligning to customer/end user needs, organisational drivers while deriving competitive advantage and achieving value for money.

You should gear the organisation towards a developing a stronger commercial focus on achieving a successful return on its investments, where the standards for this are set by the definition of value for money employed across commercial deals.

Take accountability for achieving and developing the definition of value for money across the organisation and uses nuanced understanding of the motivations and behaviours of stakeholders, suppliers and networks to achieve the organisation’s objectives.

Know the difference between key commercial and organisational risks impacting own department and ensures that these are robustly managed.

Make yourself ultimately the go-to commercial person for the organisation and can move out of standard route when appropriate.

Raise your profile by being known for your skills to critically assess short and long-term commercial models used by the organisation and its supply chain with a clear line of sight of the suggested risks of application, aligned with ensuring that the selected models achieve government policy and objectives.

Educate yourself to maximise commercial benefits through a deep understanding of the whole commercial life cycle, innovations, and new commercial models.

Business Case for P2P System

Do you need help with writing a business case for a P2P system?

Full Business Case

Description: Purchase to Pay and Source to Pay- E Procurement Software

Details Context

The implementation of an organisation wide P2P software to achieve the following objectives:

  • Reduce unnecessary and improper purchases
  • Ensure only accurate invoices are paid
  • Improve the efficiency and workflow for procurement and accounts payable
  • Ensures compliance with corporate policies
  • Maintain clear visibility of the cost pipeline and impacts on budgets
  • Provides dashboard reports and management information to achieve VFM
  • Streamline the sourcing process, capture information in a central repository, suitable for both centralised and decentralised procurement
  • Spend analysis and information on committed spend with real time data capture

Business requirement- Identifying the need

An integrated P2P system allows the end user to minimise the admin time related to the raising of PO’s, matching invoices, dealing with adhoc queries. A streamlined process allows users to concentrate on their day to day activities core to their role.

P2P can deliver the following outcomes:

  • Improves handling or orders, budget authorisation, goods receipting and payments.
  • Reduce the risks of fraud and duplicate payments through automated workflow
  • Automate the purchasing process and ensure compliance
  • Eliminate the need for manual matching of invoices
  • Reduce coding errors
  • Integrate with sourcing or source to pay
  • Obtain visibility of contracts based on rules and alerts ( if the contract management module is included)

Fees

  • SaaS Licence
  • Volume of transactions ( may influence fee)
  • Professional services fee/ Implementation
  • Total cost over X years

Executive Summary

The paper outlines the benefits of implementing a new integrated e procurement system comprising of modules for sourcing ,P2P, and contract management.

The procurement function seeks approval to secure the funding for the new project, The proposed solution will help employees at all levels of the organisation to buy goods and services without too much undue effort or delay caused by the purchasing process.

E procurement software will support the procurement policy to minimise the tactical purchasing process and free up end users time. The procurement function will use technology to offer light touch tactical support and free up their time to review high value and strategic contracts.

Other benefits to be realised include software for a formal quotation process for low value transactions, and a sourcing module for ITT’s. The software mandates all spend to be controlled through a single repository, linked to the finance system to track budget versus committed spend by pulling data through different systems.

Identifying the Business Need

  1. Technology is taken for granted as being integrated into our daily lives and we expect our workplace to provide systems to make it easier for us to do our job on a daily basis. Users expect the company they work at to leverage technology platforms
  2. Senior management want control and spend visibility.  Implementing the right software means the procurement function can provide spend information at a click of a button, export committed accounting information and monthly management information to capture real time data.

Strategic Context

The company has strategic goals to grow the business by X % within the next X years. The back office function requires the acquisition of goods and services within a short time scale, and end users need to make the acquisition as efficiently as possible with minimum delay. By controlling spend using a technology platform the procurement function can fully support business objectives with a lean team. 1 FT Procurement employee should influence circa 10M spend. The total number of FTE in the procurement function should be multiplied by 10M.

Options

  1. Buy a licence for an integrated Source 2 Pay System (full implementation in year 1)
  2. Buy a licence for an Integrated system with pilot implementation ( subsequent roll out completed by the company to reduce consultancy cost)
  3. Do nothing ( continue to work manually)

Justification for Option to proceed with implementation of new software

The justification for the implementation is on the basis that current manual tracking of third party expenditure is insufficient and not fit for purpose. The procurement function is focused on reactive tactical measures with no capacity to free up their time for a more strategic approach. The organisation has failed to realize real cashable savings on controllable spend. Access to relevant information and spend visibility is the key to successful cost reduction.

Risk Analysis (examples)

Risk TypeInitial ImpactLikelihoodCurrent RiskMitigating Actions
Available resources, change fatigue, too many projects happening in other parts of the organisation, budgetary constraints, staffing changes within the department and loss of knowledge transfer
Initial Impact =il scored between 1-5
Likelihood =L scored between 1-5
Current Risk =il XL
Confirm PMO resource, IT resources, pilot roll out rather than big bang, robust business case, state strategic objectives and business benefits, ROI, full handover in the event of staff changes

Cost Benefit Analysis

Savings AreaToolSavings Calculation
Avoidance of unnecessary purchase, lower prices by capturing the same requirement once during the sourcing process, reduced delivery cost, early payment discounts reduced payment of duplicate and improper invoice, improved spend data promotes competitive sourcing and focus on spend categories, reduced cost of PO handling and invoice processing, reduced audit costs reduced organisation wide purchasing cost, reduced cost of non supplier performance
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Spend Control – Introducing Cost Effectiveness

Improve the bottomline with cost control techniques

A successful company generates profit but also knows that it must keep cost lean. Spend control is one of the easiest ways of helping an organisation maximise efficiencies.

Spend control and transparency: The first goal of any procurement organisation is to ensure it has a complete and accurate picture of its spending, that all information is continuously maintained and the database is accessible for procurement professionals across the organisation. Bringing full spending visibility under one roof leads to higher rates of compliance, to the point that maverick spending becomes almost extinct.

Going beyond savings delivery: The goal is to identify the full savings potential and the steps that can be taken to capture those savings. To this end, leaders analyse category and cost structure, as well as the supplier landscape for each category. They conduct category workshops to verify findings, develop initiatives for each category and estimate the savings potential of each initiative. The results can be impressive.

As part of this process, successful companies look for quick wins and assess initiatives on an ease-of-implementation basis.

Invest to better understand its markets and suppliers, which helped it effectively negotiate prices. The company consolidated volume, designed to cost and developed integrated systems for total cost of ownership.

Establish corporate and cross-functional interfaces. For example, procurement needs to work closely with the business, operating towards common targets and motivated by common KPIs, all managed through a rigorous process that incorporates feedback from internal customers. As required, companies make organisational changes to help them meet customer needs.

Category management and supplier management are the two most important processes for achieving sustainable results.

Procurement begins with a single step: performing a basic diagnostic to learn, in important detail, where you’re starting from and what you stand to gain by taking the journey.

Ask yourself the following:

  • How much do you spend on third party spend?
  • With which suppliers are you making these purchases?
  • To what degree is the procurement department involved and contributed to the cost reduction
  • How would you assess the value of procurement against cost reduction initiatives and what improvements could be suggested?
  • Are suppliers put through a consistent competitive or tendering process?
  • What post contract management is undertaken to realise the contract benefits?
  • Do you have a P2P process that works, what improvements can be made?

Most established companies with a procurement function will have tactical spend control measures in place. However, it is surprising that sometimes organisations can still lack some basics because the culture is that procurement is viewed as a blocker rather than an enabler and strategic partner.

Perception and reputation are two things that take commitment to change. Don’t start by promising the world and under deliver. Instead, make a simple pledge to do things better with a one-page summary outlining your strategic vision.

How does procurement impact the bottom line?

Be natural. When a new requirement comes up offer your support and begin undertaking some competitive sourcing to help you stakeholders achieve their objectives. Most companies operate a hybrid approach of centralised procurement and devolved activities. Where it is devolved make sure your templates are up to scratch. Where it is centralised your templates need to be near perfect. Remember though, you are more than a template. You add value by walking your client through the process whilst maintaining your position as the commercial “go to” person. Your role is not to site there and regurgitate words for the tender pack, your role is to lead and advise.

Review your supply base and where there is limited competition set out a plan on how you will increase competition to get better offers. Where there is a monopoly review other options that might be available. Think, short, suppliersmedium and long term.

Aggregate demand across all business units and stop silo buying. It doesn’t matter if the individual needs are different. We want to focus on the supplier’s ability provide and not the needs of each directorate or business unit.

Roll out the good old 80:20 rule. Pull a spend report and check whether if 80% of your spend is concentrated with 20% of your top suppliers. If not start aggregating demand into larger contracts.

Be careful to not become over reliant on  a single supplier, balance the need for aggregation against supplier risk.

Are specifications asking for a rolls royce solution when a mini will do. Push back, your role is to be the gate keeper for all types of demand management.

Review your maverick spend, assuming that your have a PSL in place, make sure that people are buying from negotiated contracts.

It sounds obvious, but is everyone paying the same price? One example might be recruitment cost, different managers might be engaging with the same agency but negotiating different rates because there is no central contract in place.

Review performance in contract. You should be realising the benefits of your negotiated contract, but if its not managed, all the promises might not materialise. Don’t be afraid to ask for continuous improvements. It’s the suppliers job to come up with innovation and best practice they have learned from being in the industry and working with other clients.

Keep management informed. They should know if their contracts are taking them over budget. Provide them with monthly dashboard reports to increase spend visibility.

Make sure compliance is adhered to. Don’t overly rely on compliance but a governance procedure is there for a reason. Balance compliance such as NO PO no Payment with being commercial in your advice.

You are supposed to follow a robust procurement process but don’t hide behind a process. Use your judgement to allow for flexibility when business needs outweigh the “correct thing to do” where appropriate be agile and forward thinking. If you need to bend the rules do so, as long as you can justify your actions, create the best outcome for your clients because you want to offer them the best business partnering arrangement possible. Your role is not purely based on cost reduction. It’s not just about compliance, and you can’t walk around only interested in participating in commercial conversations. Your role is multifaceted and cost reduction is one aspect.

Airwatch- Mobile Device Management

We live in a connected world and an increasingly mobile workforce requires mobile devices to make their job easier. Mobile Device Management helps users bring their smartphones, tablets and laptops to work and enable them to work seamlessly with the organisation’s IT infrastructure. One of the market leaders in EMM and MDM is Airwatch.

With more than 16500 customers in 150 countries and since their acquistion from VMware has become integrated with various VMware technologies, most notably VMware’s identity and access management and software-defined networking products. AirWatch’s offering has comprehensive Enterprise Mobility Management (EMM) functionality and as a result, appears most frequently in Gartner clients’ EMM vendor shortlists. Previously, AirWatch was a closed system with limited support for third-party independent software vendor

Strengths

* AirWatch has proven large-scale deployments across most vertical markets.

* The administrative console is one of the easiest to use with embedded training videos, links and a wizard-like approach to help new administrators become productive quickly.

* AirWatch continues to push innovation with zero-day support of new operating systems and expansion into management of Internet of Things devices.

Cautions

* Customers report that the Inbox email application lacks maturity, causing customers to use third-party PIM products.

* On-premises infrastructure components are based on Windows, SQL Server and Linux (not appliance-based), adding administrative overhead compared with other on-premises products.

* Product stability continues to be an issue with AirWatch. Gartner clients have reported several recent issues on both the console side and the agent side.

They think that their differentiation is: Advanced integration and partner ecosystem Common development platform Broadest mobility solution set Multitenant, highly scalable architecture Flexible delivery: cloud and on premise

Note this post is for information only and does not make any recommendation about the type of provider to be used for your organisations needs.

Find out more at: http://www.air-watch.com/