Today’s guest post is from Torey Guingrich, a Project Manager at Source One Management Services, who focuses on helping global companies drive greater value from their Procurement expenditures.
As an organization moves from decentralized/departmental procurement decisions to a centralized procurement and strategic sourcing department, there are bound to be some growing pains when it comes to working with departmental stakeholders.
Two of the main drivers for this are that:
- Stakeholders are used to making decisions.
End users and department personnel feel they know what is best to support their needs and may have had free reign in the past to make purchasing decisions for department-specific needs as well as more general categories (e.g. office suppliers, laptops and desktops, IT accessories, etc.).
- Stakeholders are used to managing relationships with the suppliers with whom they work.
Because stakeholders are making their own purchasing decisions, they are also typically managing the negotiation, contracting, and ongoing relationship with the supplier.
To transition to an effective central procurement and sourcing model, changes will be necessary within the organization to support the new structure. As someone who has helped clients transform (or build) their procurement operations, I have some seen some preventable gaps that undermine the transformation process and cause frustration for Procurement and the business units they support.
- No standard procurement process.
One of the first steps for establishing a central procurement department in an organization is to ensure that those in Procurement are singing from the same sheet when it comes to process. If you have a mix of past (or no) experience, each person is likely to come to their role in Procurement based on their past processes (or lack of processes) in mind. Begin by defining what the standard sourcing process looks like for your company and communicate that process to the organization as a whole. Reiterate Procurement’s role and the stakeholders’ role within that process; the goal is ensure end users are familiar with and are able to embrace the process, not to cut them out of it. Certainly not every project and/or purchase may follow the same process, but having a standard and communicating this to end users provides a familiarity with how procurement works and what the stakeholders can expect. Having a standard process allows stakeholders to feel comfortable working alongside Procurement and not feel as if decision-making is being stripped.
- No defined (or enforced) Procurement and Contracting policies.
Many times I have seen organizations start pushing centralized purchasing decisions and procurement support without any organizational policies that establish this new standard within the company. Without clear organization policies (and management support of those policies) for where, when, and how Procurement should be involved in departmental purchasing decisions, stakeholders are bound to continue to work in a vacuum.Any policies put in place should cover at a minimum the procurement process, how and when procurement needs to be notified of a purchasing need, and authorization levels (e.g. who can sign for what, spend levels that require certain level of sign off). Many times, part of that process includes a legal component in terms of who is actually authorized to sign agreements, purchase orders, etc. Many companies employ a checklist or agreement cover sheet that requires multiple sign-offs that may include review by the stakeholder, legal, procurement, and others before the final signature on the agreement is completed by the authorized party. Without a clear and communicated (and backed by management) policy, contracts typically continue to be signed by business units without any Procurement knowledge or oversight. While this may threaten the autonomy of some stakeholders, Procurement and management should be explaining the benefits of this oversight, especially for high value agreements or purchases, and the pitfalls these policies help prevent.
If only these were all of the gaps. These are just the beginning, In part II, we will discuss two more gaps that need to be prevented.