When millions are spent by companies each year on their own needs for goods and services – on everything from office supplies to leasing vehicles, temporary staff to professional and IT services – many people would expect a few oddball purchases to slip through.
You may recall, headlines in the public press such as the council that spent nearly £19,000 on a motivational magician to boost staff morale just weeks after announcing it had to save £2.3 million. And what about the government agency that paid £427,000 on rubber bullets that police were not even allowed to use?
The trouble is, when a purchasing process is unstructured or lacks proper controls, then wasteful procurement can become the norm, not the exception. And it's not so much the headline-grabbing maverick purchases either. The whole process can become slow, unwieldy and costly. What's more waste is often hidden. People are just unable to see it, even if they dared.
Three signs of pain to watch for
So what are the symptoms of something going wrong in your purchasing process
? Here are three clues. Any of these will indicate there's a problem.
Symptom #1: Significant maverick spending
Employees making purchases without appropriate authorisation can be hugely wasteful. At best, they may spend too much or purchase the wrong items. At worst, they can lead to compliance dangers and fraud. Watch out for invoices arriving in Accounts Payable with no purchase order numbers — requiring a mass of administrative power to mop up the mess.
Symptom #2: Spend going to non-preferred sources
Without the right systems, potential savings from successfully negotiated prices and contracts are lost. Unless buyers are guided towards approved suppliers and contracts then you'll notice how spend simply multiplies across dozens of suppliers. Not only does this increase waste and leave you exposed to risk, but managing a vast sea of suppliers is challenging and will add to your costs.
Symptom #3: Budgets exceeded or under-spent
Unless everything in the purchasing process is connected in near real time, managers have no idea how much budget is left — at any given moment. Often, there's no visibility of purchase commitments until invoices arrive. Some managers will press on anyway and bust their budgets, while the cautious ones will play it over-safe and potentially starve your business of the goods and services it needs. Either outcome is bad news.
It's understandable how problems happen
Poor practices can date back years, decades even. Despite the fact our smartphones have more tech than NASA needed to put someone on the moon, paper-based systems and inefficient processes can become ingrained and stop organisational productivity from taking off.
Buyers, budget-holders and finance chiefs are working flat-out, so there's little opportunity to 'take on the system' even if it's insanely frustrating at times. Those at the coal-face know there's a problem. They hate the delays, they loathe the waste and it saps morale.
Even when new IT systems come along, there's cynicism. People have heard all the promises before ... how procurement will become as easy as online shopping. What often happens is that new systems are unable to cope with the inevitable complexity.
So what's the answer?
One knee-jerk response is to impose strict manual controls. But these can prove counter-productive. Critical purchases are delayed, the cost of the process grows and frustration builds — often spilling over into yet more maverick purchasing.
What everyone needs is a solution that's fast and intuitive
, replacing paper-shuffling with electronic processes that steer choices and apply compliance ... with users barely noticing.
To see how it's done, check out the second part
of our story on purchasing.