Which of the following best describes the tool/ technique used to identify lessons learned during the procurement process, including the?

answer C. Procurement audits        

The best option is given in show detail is

C. Procurement audits

The term ‘procurement’ covers all aspects of the acquisition and delivery of goods or services, spanning the whole contract life cycle from the identification of needs to the end of a service contract, or the end of the useful life and subsequent disposal of an asset.

Achieving strategic procurement outcomes involves setting strategic priorities and direction. The implementation links strategic planning with operational planning and financial planning and management. Adopting a structured approach to procurement planning results in robust, objective analysis that informs the best methodology to approach the market and achieve optimal procurement outcomes. All of this means that resources – time, money and people - need to be effectively allocated and successfully used. For agencies, strategic procurement can be identified at two levels. Firstly, involving high-level strategic thinking and business planning secondly, at an operational level when dealing with individual acquisitions.

Category Analysis — Are we buying the same/similar goods and services from different vendors or too many vendors? We build a 3–tier category hierarchy that reflects our business/industry, this includes a Super Category, Category and Sub-Category. We then categorise all of the spend transactions into the most appropriate sub category. Our reporting then allows us to explore our spend in the defined spend category hierarchy. This allows us to identify spend leakage issues such as fragmented purchasing across vendors and across the organisation for specific categories, rogue/maverick spend.

Item Analysis — Are we buying the same item from different vendors, in different geographies or business units at different prices? We can analyse our expenditure at an item level. Our analysis enables us to explore situations where the same item is being purchased from multiple vendors, at different unit prices, by different geographies or different branches of the business. Our item analysis allows us to focus on fragmented purchasing in the business and identify spend leakage issues such as purchasing from non-preferred vendors, fragmented purchasing across the organisation and rogue/maverick spend.

Vendor Analysis — What goods and services are we purchasing from a single vendor? Vendor analysis allows us to create detailed spend profiles for each vendor. We perform vendor normalisation to create a single view of vendor i.e., ABC& EFG, XYZ & ONP LLP and TTT are all identified as the same vendor. Our vendor profile will show vendor spend by category, organisation structure, item, payment, contract (where available) and historic spend over time. This process is designed to provide a single view of total organisation engagement with a single vendor.

Contract Analysis — Are we complying with our existing negotiated contract terms? Where contract data is available and used in our finance system we will analyse spend with vendors by contract to identify spend leakage through contract over spend and/or contract non-compliance.

Payment Analysis — Are we leveraging all possible discounts or interest from our invoice payment process? Payment analysis enables us to analyse payment practises and terms within our P2P process to identify issues such as unrealised discounts through late payments of invoices or unrealised interest from early payments of invoices.

Savings — How much and when?

The procurement team moves from unit cost reduction to ‘total cost of ownership’ improvement many of the initiatives will rely on process and business unit practice changes. This means that business units need to be accountable for changes and the consequential savings. Another important challenge for the procurement team is in getting the right balance between shorter term savings opportunities and longer-term transformational opportunities. The typical mandate for a procurement team is centred on a need to produce savings in the short-term to ‘get buy-in’. As a result, the short–term opportunities are often pursued at the expense of longer–term and more strategic core service delivery improvement initiatives.

Procurement has used sourcing methods to reduce unit costs on an initiative by initiative basis. This often comes at the expense of the wider portfolio of spend or neglects the life cycle cost of assets.

The procurement value chain where further analysis can yield potential rewards is the requisition–to–pay process. Does our organisation manage these processes efficiently and effectively? Has it got the balance between risk management and process efficiency right? Is there an opportunity to improve the effectiveness of the accounts payable team by reducing the number of transactions or reducing the number of incorrect invoices received?

 Check List

1

Spendmap

Understand what (and how) our organisation spends.

How much does our organisation spend and who is it spending with? What is our unit cost for purchased items and how much does this vary? How much of our spend is associated with the top ten suppliers?

How many suppliers do we have supplying the same or similar items?

2

Savings

Get the right balance between short and long–term savings initiatives

Have we got the right balance between short and long–term savings?

Do we link the forecasting, budgeting and procurement savings programs?

How effective is procurement at achieving savings and improving service delivery effectiveness?

Are we measuring, tracking and reporting realised benefits?

3

Procurement

value chain Focus on demand, source, fulfil and manage levers, not just unit costs.

Are our savings initiatives focused on unit cost or total cost of ownership?

Do we understand the difference between ‘needs’ and ‘wants’?

Are we a collaborative client for your suppliers — are you working together to take cost out?

4

Contract and supplier relationship management

Realise the value of our contracts by managing them and our strategic suppliers.

Are we getting what was promised when we signed our contracts?

Have we integrated your strategic suppliers into your longer term planning and reporting processes?

Are we addressing your transactional processing issues?

5

Operating model

Create an operating model that builds on the strengths of our team, commercial and technical.

Is there a documented procurement vision, objectives, strategies and performance scorecard that is signed by the CEO or Board?

Do we have blended teams delivering procurement outcomes?

Does our procurement function have credibility within your organisation?

I believe the best tool used to learn during procurement is the proposal evaluation technique and negotiations. While this technique explains the broader knowledge know-how of the evaluator it is best to know the he must be experienced enough to understand the scope of work for him to evaluate the proposal/tender thoroughly.

Bids must be evaluated based on the criteria that was developed during procurement process and comes negotiation of cost which will not put your tenderer/bidder as underbid or overbid.

Both will have significant effect to the owner if it will be under or over bid.