Last week I spent my second day with the accountants and procurement teams of, I guess what you may describe as, a pseudo public sector organisation somewhere in Australia!
From our initial meeting it was apparent they had very little evidence of their performance in terms of fact-based visualisations to support their belief that, whilst not perfect, they were probably about 80 per cent effective in value creation and value capture.
Prior to my arrival for this meeting our team had been doing some work to analyse performance of their value creation and value capture processes within the organisation.
We had been called in to improve their performance from their perceived efficiency of 80 per cent with the possibility of introducing PROACTIS technology to help improve on this.
The findings for their team were a staggering shock to them.Whilst I don’t have time to focus on all the issues that were uncovered in this blog the following were just a four key areas of major concern:
- The organisation effectively had no process for on-boarding new suppliers (it appeared if someone wanted to buy something they could from anyone they liked and a new supplier created without any process)
- 68% of all purchase orders were created after the event (i.e. the goods and the invoice had been received)
- 28% of all invoices had no purchase order or proof of delivery of goods or services
- 44% of spend against Contracts and the best value agreements Procurement had put in place was actually being utilised. 56% of spend that should have been against contracts was bypassed and savings missed.
Of course the fact they did not have this information initially started alarm bells for me at our first meeting – after all we can’t manage what we can’t measure.
In this blog I am going to focus on what I perceived to upset the procurement team the most – the failure of capturing saving from the contracts.
The procurement team were almost deflated from the outcomes and I have to say that they seemed like hardworking individuals, understood good negotiation and, above all, are passionate about their roles.
Of course we had to further prove our findings because the evidence was so shocking it was hard to believe for them. They had just found out that the majority of the work negotiating these contracts was wasted. Over half in fact!
One of the procurement team expressed his frustration by saying “two and a half years of my efforts, virtually wasted”.
The problem for them was that whilst the procurement team had gone about putting contracts in place through well negotiated efforts, and for pseudo public sector a reasonably effective legal department, much of this work was bringing no benefit whatsoever.
So what was the main problem?
Well simply that the contracts were not available or apparent at the time of buying (or value capture) was the overriding issue.
Our interviews of the stakeholders (the end users) indicated clearly that the majority of the time having to locate details of the contract and agreed prices was forgotten or seen as all too difficult.
Other problems were that different versions of the contract seemed to be used around the organisation! Contracts had expired and new superseded versions were ignored.
So how would technology help?
Products like PROACTIS instantly take advantage of the contracts. The user does not even know they are purchasing against a contract, they just want to buy something through the eProcurement solution and it will decide what goods and services can be bought from where.
Of course this can still go through all of the authorisation routing required, but from an end users perspective buying what they need to carry out their role is simple. Nothing to remember and procurements hard fought savings gained automatically. A win-win for all parties concerned, including the supplier.
Of course PROACTIS helps the procurement department by not only allowing end users to engage in saving but by having the following key benefits:
- Contracts held in one central repository
- Visibility of all elements relating to the contract (status, contract type, codes to categorise spend, contract title, contract lots, etc)
- Held documents associated with the contract (soft copy, confidentiality agreements etc)
- Allows the automation of data collection of purchase data and delivery activity for supplier analysis.
- Handle a wide range of contract types (e.g. simple agreement, framework agreement, sub-contracts, call-off or “Blanket” agreements etc)
- Automates the periodic review process with manager delegation with automatic reminders of review or appraisal needs.
- User definable dates and events (contact milestones, review dates, auto renewals etc)
- Total transparency
- Full contract KPIs, available real-time, of spend by contract, percentage complete by contract, supplier performance and organisational activity versus commitments
Proponents that state that consultancy alone – without the aid of a solution through good technology delivery – to solve these problems is something I see day in and day out, and are, I’m afraid, misleading. Good advice, solutions to your problems and technology are all required.
Find out how Kinetic can help you solve your Contract problems through a mixture of understanding your problems and applying world-class PROACTIS solutions to resolve them.
Scott Graham is one of the Directors of Kinetic Information Systems. He started his career in the UK as an accountant in practice and then industry. Scott has been in the software industry for over 18 years in the UK and over the past five years down under.
You can connect with Scott via his LinkedIn profile linkedin.com/in/scottgrahamkinetic