Evolution of procurement

May 24th, 2017

Take Aways

  • Keep it simple and start with the basics
  • Ensure you know what others’ understanding is of the terms used in Procurement
  • Put significance to your procurement function
  • Ensure fairness and transparency
  • Great Procurement evolves into high quality stakeholder relationship building

The Past

In the past, procurement has been an in-house activity. Before computers and procurement innovation, companies employed resources to buy to best price what was required to operate the firm. We saw clever researchers coming up with multiple ideas of how to do things better and use procurement as a competitive advantage. Science was added to the Procurement discipline. Then companies really started to compete when margins got smaller and smaller.

A paradox occurred; Procurement’s role was to reduce cost in the production of goods and services, but too many made the decision to remove the procurement function all together as this function became viewed as a cost to the business that was not essential to the core business. End result was that the procurement activity had to be taken care of by staff whose main role was a non-procurement role. Procurement became something one did when time allowed. Procurement almost became extinct as a discipline. If you did procurement it was because you fell into it by accident.

We at PAAS Partners meet a large number of individuals that have great procurement skills. One of the first tasks is to invest some time to reach a platform where everyone in the conversation has a shared understanding of what the terms in procurement mean. This upfront investment will be a time saver! Everyone has a slightly different opinion of what for example Procurement, Strategic Sourcing, Category Management, Strategic Partnership and Commercial Management mean. At Linkedin we see numerous discussions of what the terms mean and it is interesting to see people’s comments to these Linkedin articles. In conclusion, there are many interpretations of each procurement term and this is simply due in part to where you grew up in the procurement world and who influenced your ways of carrying out procurement. Procurement is suffering from never having been an acknowledged discipline with a global blueprint.

We at PAAS Partners define Procurement as the activities that go on from the moment one start planning obtaining a product or service to the point in time the product is disposed of or where the service has been delivered, paid for and reached end of warranty. Procurement is everything that goes on between the starting and endpoints.

In 2010, the Auditor General published a document well worth reading highlighting short-comings identified within the New Zealand public health sector. The findings are easily relevant to any organisation in both public and private sector. The read is available at this link

www.oag.govt.nz/2010/dhbs-spending/appendix.htm

We will give you a little peek: The first highlight in this report is “Significance is not put on the Procurement activity”.

Where are we now?

There are two themes within Procurement that have a particular tendency to attract headlines. The first one is poor commercial management of large contracts. The New Zealand Government Procurement and Property Team at Ministry of Business, Innovation and Employment (MBIE) have recently acknowledged the requirement to increase the capability of commercial management skills within public sector and have introduced the Significant Service Contracts (SSC) framework whose goal is to apply better commercial management of large contracts with suppliers. MBIE is also developing the Procurement Capability Index (PCI) framework where its aim is to map Public Agencies procurement capabilities, identify gaps and then be in position to close these gaps.

The second theme is fraud. In the recent years a number of fraud cases originating in Procurement has surfaced and reached the headlines. Fraud can be prevented with the right approach and tools for Procurement.

We at PAAS Partners have gained a good overview of what procurement capability exists in both private and public sector in New Zealand. Unfortunately, many organisations are not putting significance to their Procurement activity. There is a real need to build procurement capability and capacity at organisations in New Zealand.

We at PAAS Partners recommend to keep it simple. Identify what your Procurement maturity is and identify the gaps towards the maturity level that makes sense for your organisation. Your procurement function is never going to be perfect so focus on improvements where it makes sense. The MBIE PCI is a great tool to use for this purpose.

We at PAAS Partners find that many organisations have some way to go in ensuring fairness to the market and applying transparency in their sourcing process. If you don’t have it, simple tools such as Conflict of Interest Declaration register, Tender register and a Contract database are good starts (MS Excel is good enough for this purpose). Too many organisations do not have a complete overview of what their contracts are, when they expire and what their commitments are. As maturity increases, then options of more advanced tools could be considered.

The Future

It will be an increased focus on carrying out Procurement right. In March this year, the Auditor General wrote a letter to CEO’s in public sector emphasizing the importance of getting Procurement right. The read is available at this link:

www.oag.govt.nz/2017/insights-and-challenges

The Auditor General outlines his vision for a fit for purpose public sector, the importance of transparency and the need to understand and managing risk – all a direct linkage to Procurement.

The way we work will change dramatically over the next 15 years. The Millennials and Generation Z have different approaches to work and some say emails will no longer be used extensively as they are today. What we know is that people no longer have time to read long emails and we know that email generates more emails. Too much time is spent on managing your emails these days. The fact is that if you are going to write something, it must be short and to the point. This skill is hard to come by. Good skills in technical procurement writing is hard to come by.

So – what is the alternative? Soft skills! Being able to communicate with people has already become the most important skill when searching for good procurement people. Having the ability to speak with people at all levels and understand their needs has become a critical success factor to great procurement.

The traditional way of thinking about procurement has already changed. We at PAAS Partners are offering Procurement as a service to public and private sector and the demand for this service is high.

Sincerely,
Knut Stoyl