Thanks to the recession, corporate-style procurement practices have been unleashed on small and midsize companies. You research potential vendors, use a formal bidding procedure, negotiate price, require contracts, and conduct ongoing performance audits. It can drive your more impatient seat-of-the-pants managers and suppliers crazy. To keep process manageable and everybody sane, experts say to focus on only a handful of key purchases.
I went searching for the three characteristics that all good procurement systems have in common. I took the feedback I gathered and created this trio of crucial questions to ask as you upgrade your system.
Question 1: How much are we including other departments?
Nothing is worse than a person handling the purchasing who comes from a finance background and is only looking at the numbers. Yet it happens all the time, I learned.
Instead, management can use its procurement policy as a conduit to its various business units, advises Deloitte procurement specialist Daniel Abichandani in Inside Supply Management magazine. A good policy “can help the departments manage their costs, provide insights into their spend, and minimize potential risks,” he told me.
The best way to do that is to involve the people in your company who use the goods and involve them. For instance, Bonnie Seydler, certified purchasing manager and print procurement specialist, says talk to users off the record to get the honest scoop on the good and bad aspects of any supplier under consideration.
Question 2: Are we having transactions or relationships with our vendors?
The right answer is relationships. “You don’t want to rape and pillage your vendors. You can’t rip the profit margin away from your suppliers and then expect them to be around and able to serve you for very long,” Seydler told me. I also discovered that more suppliers are starting to push back, sometimes for their own survival. Case in point: Tara Comonte, chief operating officer of marketing agency Mediabrands. “We are learning to say no to clients who allow procurement to compromise our ability to invest and innovate,” she pointedly told the trade press.
For big purchases with long-term contracts, it’s a good idea to tour the facilities of short-list companies. Seeing their operations can trigger fresh cost-saving ideas.
Question 3: Are we auditing our suppliers?
Most companies sign a contract with a vendor and that’s it. “They never peek their head around the corner to check if the supplier is overbilling or is actually adhering to the hard-fought stipulations in the contract,” Seydler confided in me. Don’t let that be you. An audit will help you to know if a low-ball bid is incorporating hidden costs or if the supplier is lagging behind on innovations in your field. And here’s the other side of the coin. Ask the vendor to audit you. Are you doing things that stymie cost-effective service? Where are the redundancies? Remember, that’s where profit might be slipping away.