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Focus: Sourcing/Procurement: Feature Article from Our Sourcing and Procurement Subject Area - See All

From SCDigest's On-Target e-Magazine

- Feb. 17, 2015

Supply Chain News: Procurement Function in Medium-Sized Companies Needs a Management Framework

More Activities Across the Procurement Lifecycle will Need to Be Shared with Non-Procurement Managers, but Governance is Key

SDigest Editorial Staff

How can procurement organizations in mid and smaller-size companies scale their activities up and add more value?

One key is simply accepting the fact that in smaller organizations procurement can't be involved everywhere, and so it has to be smart about where to apply and leverage the resources it has. That according to Dave Nellist, head of procurement at New Zealand-based insurer Lumley, writing recently on the pages of the UK's Supply Business magazine.

SCDigest Says:

This matrix "can be used to support internal planning and stakeholder discussions" as to who should do what across the procurement lifecyle for any specific commodity or category.

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"It is necessary to have published standards, methods, guidelines and policies that direct and inform procurement activity," even in these smaller organizations, Nellist argues. "We might call these collective documents, along with tools and data, the procurement framework."

So what should be in a "procurement framework?" Quite a bit, actually, including the following elements:

• Procurement code of ethics

• Gifts and hospitality policy

• Delegated authorities

• Procurement risk and fraud management procedures

• Supplier due diligence process

• Sourcing guidelines

• Supplier relationship and performance management procedures

• Preferred supplier protocols (who the preferred suppliers are for particular categories and why, engagement and compliance)

• Procurement's role in terms of corporate social responsibility (where relevant)

• Sustainable procurement policy.

So where should a procurement organization apply its resources for maximum effect? Nellist sites several areas or conditions that invoke strong centralized procurement involvement:

• An outsourced service is part of the delivery of the enterprise's own core purpose

• The enterprise has classified the supply as high risk

• The product is uniquely tailored to the enterprise's specification

• There is a monopoly supply market

• It is a high-spend category

• The enterprise is not familiar with the product or market.

(Sourcing and Procurement Article Continues Below)

CATEGORY SPONSOR: SOFTEON

Nellist recognizes that there are different types of roles involved in the procurement lifecycle beyond those found in the procurement organization itself. Those roles he defines as:

Owner: Especially where there is a formal 'key' or 'high risk' supplier classification, or where a product/service is used across multiple functions, there should be a supplier relationship owner.

Requirement holder: The person or business unit in an organization that has the requirement that is to be sourced.

Specification holder: The person or business unit in an organization that develops and confirms the specification that is to be procured. This may or may not be the requirement holder depending on the technical nature of the requirement.

User/consumer: Anyone in the enterprise that uses the supplied product or service in some way. This could include any of the people performing the above roles.

From there, Nellist offers a model that shows a company how to organize its procurement staff and these different types of non-procurement managers across the procurement lifecycle, as shown in the graphic below.

This matrix "can be used to support internal planning and stakeholder discussions" as to who should do what across the procurement lifecyle for any specific commodity or category, Nellist suggests.

"Not all organizations have the level of procurement resources they need for optimal management of supply-side activity across all spend. There needs to be recognition of aspects of the function's reach and designated responsibility," Nellist concludes. "Where non-procurement functions are involved in procurement activity, this will be supported by a framework that is understood and accepted by the wider business."

He adds that "Ownership of supplier relationships does not always need to reside with the procurement function and so accountability must be properly positioned."

What do you think of Nellist's framework? How can SMBs best leverage limited procurement resources? Let us know your thoughts at the Feedback button (email) or section (web form) below.

Recent Feedback

Hey there, I noticed in the portion "what should be in a procurement framework", the element of internal requisition policy is not explicitly mentioned. I was curious about if you just meant that to be included in "sustainable procurement policy"? I would have to say that internal requisiton standards and a policy for communication are extremely crucial in order to not only minimize conflict across departments, but also to ensure transparency and uniformity between purchase requisitions and purchase orders.

Anthony Moore
Supply Chain Student
The University of Texas at Austin
Feb, 19 2015

It is definitely a better option to keep the Supply Chain Management role in-house - both for budgeting and to keep track of activites. If you are struggling to find someone to fill the role, take someone in-house and upskill them in Supply Chain Management. GetSmarter offers a great course: http://www.getsmarter.co.za/courses/uct-supply-chain-management-short-course

Kerry
Web Analyst
GetSmarter
Feb, 23 2015

I agree with the author of this article that one way to increase the value added by a procurement department in a company is to improve the transparency of information that flows throughout a company regarding procurement functions. Total cost of ownership is an important consideration in sourcing decisions, and can often lead to not choosing the lowest cost supplier. Building a framework that outlines the reasons these decisions were made will help management at all levels across a small, medium, or large firm understand how procurement is acting in compliance with the company's corporate social responsibility and in the best interests of the company. In addition, the matrix presented at the end of the article also helps show how and where other departments will have a role in other procurement related activities.

Derek Schnur
Student
The University of Texas at Austin
Apr, 14 2015

Great framework for companies to build their procurement competencies. It is critical to focus on strategic activities and have a outsourced partner who can support tactical procurement along with low spend RFI/RFQ's. Companies like ProcureDesk can offer combination of not only procurement as a service but also a complete software platform to support the procurement process.

Carl
Miller
Hireo
Apr, 12 2016