A conundrum that exists for large organisations in both public and private sectors is that they need to procure goods and services at the right price – but increasingly the boards of directors are looking to these procurements almost as profit centres rather than simply a cost.

The introduction of reverse auctions and various technologies to help the process along has led to what some people regard as a slightly bloodless process, a clinical and sometimes ineffectual fulfilment of a need.

This is why best practice advocates suggest that three enablers are needed to truly make procurement work to an organisation’s advantage: people skills, the right processes and an enabling technology of some description.

Tremendous opportunity for innovation

Independent commentators also see the need for all three elements. Veera Johnson, senior consultant at PA Consulting, is clear on the subject: “Procurement stands at the intersection of human interaction and transactional data, and there is tremendous opportunity for innovation,” she says. “As such, procurement objectives can never be fully or adequately addressed by automated software capabilities alone.

“The most effective relationships between buying organisations and their suppliers are extremely dynamic, and involve dialogue and understanding of the situational needs, objectives, and capabilities of each party,” she continues. “This is evidenced in the ever-blurring lines between buyers and suppliers, as suppliers get involved in more co-location, outsourcing, warehousing, logistics management, and service delivery schemes. The deep, integrated buyer / supplier relationships that are standard practice today in many high technology industries are expanding to other industries as well, from discrete manufacturing, financial services, and pharmaceuticals.

” Automation then introduces itself almost as a natural by-product, she explains. “As these buyer / supplier relationships evolve, unique situations that can only be addressed by people become routinized and are formed into standard processes, which eventually become automated in software. This represents a virtuous cycle where advancing buyer / supplier relationships create opportunities for innovation in people, processes, and software, which in turn create opportunities for more advanced buyer / supplier relationships.”

Ability to deliver can lag behind

The right process is crucial if a procurement negotiation – which can be cutthroat in terms of competition! – is going to yield the best results. This is never more apparent than when a negotiation goes wrong. As Ian Stevens, a lawyer in the Technology, Media and Telecoms Sector Group of legal firm CMS Cameron McKenna says: “In my view, typically, calls for re-negotiating outsourcing contracts are more likely to arise following auction style procurements where negotiations are stressed and contractors are pushed to compete to provide high levels of service at low cost. Sometimes the pressure of clinching the contract means their own internal review of their ability to deliver lags behind, and as a result they may agree to provide a service that is beyond their ability (in a sensible commercial timeframe/technical ability and/or cost) to deliver.”

This is what typically happens in cases in which the ‘people’ element has been overlooked as well as the process. Talk to any supplier to a large organisation and you are likely to hear a lot about prices being driven down and frequently there will be criticism of the people heading those negotiations, behaving like automatons. Personal communication is as important in negotiation as it is in any other business process, although it can be bypassed for some of the more mundane tasks.

Andrew Douglas, head of procurement applications for software supplier Oracle UK, says: “What is important here is change management and the culture of an organisation needs to support the change necessary to improve processes. There are various people involved in the process from finance to procurement and other key stakeholders, but they all need to have the same mindset”. He illustrates this with a simple example: “We have customers who have been able to eliminate telephone calls to accounts payable as suppliers can access invoices electronically. For this to really be effective, the relevant parties will have to accept a change in the way that they work.”

Get to grips with business strategy

Douglas also stresses the need for changes in attitude among some of the personnel. “Procurement heads need to stop being only procurement people and start being business people in order to maximise their practices,” he says. “It is a good start that the number of dedicated purchasing departments has increased over recent years; the challenge now is for them to get to grips with business strategy.” Joining the elements of the system up with other parts of the organisation is essential, he believes. “The i-Innovate research we carried out with the CIPS and Bristol Business School found that 50% of procurement departments were not joined up with finance. Operating in silos will not lead to a best-in-class Procure to Pay process.”

One organisation that has seen the mix work well is HM Prison Service in the UK. It used a combination of Oracle Financials, Order Management and Inventory to replace some unconnected financial systems and create a single, centralised general ledger with a consolidated view of spending immediately. This was important because it could link the costs of activities as well as the direct cost per item, so the costs of people negotiating a price would be factored in to the final decision on any new items acquired.

It can be seen that in the 1980s a lot of processes moved to automation, mostly on the computer platform. The 1990s saw a lot of organisations looking into drawing as many of their core tasks under one piece of umbrella software such as an ERP installation. The current view arguably takes the best of all of those and restores the human and practical elements; the result as exemplified in the prison service is a saving of over £30 million per year with no negative impact on the levels of service.

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Oracle Procurement Applications capital.

Oracle offers four integrated procurement product lines that dramatically cut all supply management costs, allowing procurement to become a part of the strategy rather than simply an overhead.

Oracle helps reduce spend on goods and services, streamline procurement processes and enforce policy compliance.

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