What is Good Procurement?

There is a huge amount of literature on what constitutes best practice in procurement and it is often informed by factors such as organisational size, strategy, location etc as much as isolated procurement principles. That said we have tried to set out what some of the elements of best practice are and also some of the features we would expect to see in a robust procurement process.

Costs

Firstly, procurement is not just about saving money and we deal with some of the other drivers and issues below. However, it is clearly a big consideration which is often misrepresented as a pricing issue e.g. what is the price of X. In practice, when we look at the delivery of cash benefits it is about identifying the cost drivers within a given category. Typically, these are around (using stationery as an example)
Volume – Number of items Client purchases, what controls you have on department expenditure e.g. are there a limited number of orderers
Tariff – The price charged by the supplier which can be benchmarked , tendered, referenced to external factors etc
Specification – The types of product Client purchases e.g. branded pens or own brand
Transaction costs – Number of deliveries, invoices per month, credit terms etc

Other Procurement Factors

Secondly, it is about identifying the other factors that need to be considered. The following is not exhaustive but identifies some of the issues that may apply
Service Levels e.g. response times, quality of reporting
Importance of continuity of service
Expertise – Ability of supplier to minimise other costs
Compliance and Audit – use of appropriate systems and reporting
Risk and Reputation – Ability to manage unforeseen events and protect Client’s reputation
Customer Satisfaction – Impact on policy holders

Prioritisation

Thirdly, it is about identifying and prioritising all these factors. For example, the financial stability of a stationery supplier may not be of huge concern but that of an IT service provider may be. It is important these considerations are agreed with all stakeholders if possible.

Market Knowledge

Fourthly, it is about understanding the market place. We would expect the Client to have an up to date published review of the market place in the different categories. This would include information on areas such as:

• Who are the suppliers, how are they differentiated,
• What are the practices , technologies and cost structures in play
• What is Client’s weight in the market, based on size and other attractions as a client
• How do we improve our attractiveness as a client and therefore increase our buying power

This review is important to keep track of any factors that may have changed since the appointment of a supplier e.g. a new entrant in the market, new technology or new pricing models. It will determine whether we should be expecting revised Service level or pricing structures, looking to retender or renegotiate with a supplier and also help us evaluate the supplier performance. It also determines the appropriateness of specifications e.g. are they based on exposure to what is available in the market or a narrow view of Client needs based on current practice
We would expect the Client to be meeting regularly with potential providers; depending on the category this could be every 6 or 12 months but rarely would it be longer.

Resource and Planning

Lastly, it is about prioritising resources to the most important areas. Does the procurement plan recognise the considerations from resource to financial reward, impact on existing suppliers etc in the different areas; are they fully set out and understood for an informed plan to be put in place.

Do we allocate resources based on understanding of business needs, understanding of resources and appropriate allocation of resources? Too often we see resources being put into certain areas and none available for others but the allocation is based within a function rather than across the functions based on business strategy.

We have set out below the features we would expect to see within a robust procurement function.
Ask yourself if they are present in your organisation

Category Management

This is a method of managing spend and suppliers to drive costs savings and efficiencies and ensure appropriate expertise is applied to all interactions with that particular market and/or suppliers.
It recognises that

• Different functions within an organisation could use the same or similar suppliers without knowing it and therefore leveraging that scale
• Many supply activities are in fact related and enables leveraging of this
• Suppliers have an expertise both in the category itself but also the negotiation of deals within that category and often customers do not have the same expertise.
• An important role of the Category Manager is to keep abreast with developments in the market place, whether new suppliers, a change in pricing models, processes or new technologies. This enables the Client to have greater strength in any negotiation.

Supplier Appointment

We would expect to see a robust process for the appointment of suppliers.

Supplier Management

We would expect to see a process for managing suppliers. It should identify the owner and relationship hierarchy and a Service Level Agreement which should include tasking the supplier with delivering ongoing process and/or cost improvements. There should be regular meetings addressing the performance of the supplier and identifying potential improvements

Reporting

We would expect to see a procurement strategy within each function and/or category which is updated every 12 months.
We would also expect to see suppliers reporting on trends, industry comparisons, opportunities for cost savings and their own performance.

Empowerment

We would expect to see clarity around who “owns” supplier relationships, who manages and assesses performance, who reviews specifications, who recommends renewals, benchmarks or tenders?
Are we able to identify who is responsible for and able to influence specification, supplier appointment and performance?

Hierarchy of Relationship Management

We would expect to see clarity around levels of engagement between client and supplier. The table below shows an example of the hierarchy.

Risk Profile

It is important in any relationship to be aware of the risks within the relationship. In many cases the hierarchy can highlight this.
Key People – Are you buying the goods/service from a company or from individuals within that company?
Relative Size – It may sometimes seem if a customer is a large client of a supplier they can get benefits. While this is true to an extent there is a point at which the pendulum swings dramatically
Competitor Relationships – It is important to know how many of your competitors deal with the provider.

Internal documentation

We would expect to see certain documents in place and being used which would indicate the presence of a robust process.
We would expect to see the following documents

• Category Management Strategy
  This is effectively a procurement plan for the category and/or individual functions which sets out the broad landscape, market capacity, Client needs and the activity to manage these and deliver an appropriate service at best price.
• Contract List
  This is a list of key contracts, owners, stakeholders and the planned activity around them
  Supplier Profiles
  This document sets out details for key suppliers such as reason for appointment, process for review, length of contract term , key personnel etc.
• Service Level Agreements
  Each contract should have specific deliverables against which supplier performance is measured
• Agreed reporting templates to complement the SLAs
  These are the reports we would expect to see suppliers providing on a regular basis linked to SLAs and including performance measurement
• One off Cost review proposal linked to Category Management Strategy
  This is a company template to be used to recommend specific course of action such a s a contract renewal or retender
  Reporting Template
  We would expect to see a structured approach to EMT reporting from individual functions and/or category managers