Charles Dominick of Next Level Purchasing and Soheila R. Lunney of Lunney Advisory Group recently released The Procurement Game Plan: Winning Strategies and Techniques for Supply Management Professionals. And even more recently, SI began it’s detailed review, in three parts, of this new Procurement Guide. So far, in our review, we’ve covered the Purchasing Professional’s 10 Commandments, organizational role, Supply Management strategy, talent, social responsibility, strategic sourcing, supplier qualification, negotiation, supplier relationship management, and success reporting. This post, which is the beginning of the end of our review, dives into techniques for improving Procurement performance and a few specialized areas of Procurement, as covered in the second last chapter of the text.
The authors define four main technologies for improving performance:
- Procurement Outsourcing
which is the shifting of some procurement tasks to an external organization
- Group Purchasing Organizations
are entities that are responsible for sourcing and managing aggregated contracts on behalf of a discrete group of companies
- Procurement Cards (P-Cards)
that allow organizations to take advantage of the existing credit card infrastructure to make electronic payments for a variety of business expenses
- Procurement Technology
that includes e-Procurement and e-Sourcing and allows a buyer to take it to the next level
Since Procurement Outsourcing will likely be restricted to tactical functions if your goal is to create a first-rate strategic Procurement Organization, since GPOs primarily offer advantages only on categories where you just don’t have the volume or the manpower, and since proper coverage of the technologies you should be familiar with and using on a daily basis is a book in and of itself, we’re going to restrict our review of performance enhancing technologies to P-Cards.
Procurement Cards are a tool that can be adopted to reduce tactical activities as they negate the need for POs and simplify payment, which can be made by the buyer placing the order. If three-way match is used (which is the matching of a Purchase Order to an Invoice to a Receiving Record), it can reduce administrative costs as it negates the need for a separate invoice review and payment by accounts payable. Of course, on the other side of the coin, a P-Card can also increase the potential for fraud.
However, as the authors note, implementing P-Cards is not as simple as calling up your local merchant account provider. Due to the ease with which a user can pay for goods not received, overpay, or open the company up to fraud (by forgetting their card at their favourite restaurant), a number of decisions need to be made before the first card is issued. As per the text, some of these decisions include:
- should there be one spending limit for all holders, spending limit by categories, or individualized limits by buyer?
- are there limits by transaction, day, or month?
- are any categories restricted? exempt?
- who is eligible for a P-Card and who is not?
- is the P-Card limited to purchases from approved suppliers?
- what transaction information and reporting capabilities do you require?
- which provider(s) can meet these requirements?
And these decisions need to be made in context of the advantages and disadvantages P-Cards can provide, which include:
- reduced cycle times which free up your staff to do strategic, instead of tactical, work
- faster supplier payments which can reduce a supplier’s cost of capital if they have to borrow less (and, in turn, the cost they pass on to you)
- extended payment terms (which do not impact your supplier as you owe the P-Card provider, not the supplier)
- less maverick buying (if P-Cards are made mandatory for certain purchases and controls that restrict payment amounts and vendors are put in place)
- better transaction data for your spend analysis
- increased chance of theft/fraud (as it’s just another credit card)
- longer reconciliation time (if one payment is made for multiple invoices)
- less budget visibility (as they track transactions, not budget)
- another system to reconcile (if they are not made mandatory for certain classes of payments)
- move maverick buying if controls are not well defined (as Homer can now order anything he wants from Mighty Office Express Supplies [MOES] if MOES is an approved vendor with no limit)
Implemented effectively, P-Cards can be a great tool. Implemented poorly, they can be your worst nightmare.
After a whirlwind tour of the technologies employed by leading Procurement organizations, which includes e-Procurement, e-Sourcing, and (Decision) Optimization (explained by the doctor in the Inefficiency Eliminator wiki-paper and the two-part Next Level Purchasing Podcast on Supply Chain Optimization [Part I and Part II, with transcript]), the book moves into a discussion of specialized areas of Procurement where special teams are important.
These areas include Global Sourcing, Procurement Outsourcing Provider (POP) and Global Purchasing Organization (GPO) management, services procurement, and inventory management. Since a discussion of each of these topics is a post in itself, and the discussion was quite dense, we’re just going to focus on a key element of success discussed in the penultimate chapter that many books miss — Project Management. As the authors note:
As organizations have grown globally, Procurement is called upon to unify everyone with a common buying strategy. This requires that a leader assemble a team and coordinate the efforts of subordinate Procurement staff, business unit representatives, and management. There are limited resources, goals, and timelines. Does this sound like the project management discipline? You bet it does!
Project management is an essential element of successful Procurement and every Procurement professional needs to be educated in Project Management methodology (which is why NLP has a course on Professional Purchasing Project Management). This section of the chapter discusses the project charter and its importance, project plans for simple projects, project plans for highly complex projects, and risk analysis — a key part of every project plan. This is a section of the text that everyone should read carefully — twice!
At this point, the reader should have a strong understanding of the basic knowledge required for Procurement success, be aware of her weaknesses, and have a plan to address them (such as through additional [online] training, certification, or mentoring). At this point she is ready to begin her career in the Procurement workplace and become a perennial all-star, which is the subject of the final chapter of the book and will be the subject of our final post.
To be concluded!