Accountability In Purchasing Processes
PurchTips - Edition # 114 November 28, 2006
By Charles Dominick, SPSM
Are Your Purchasing Processes Solid?
Today, executives demand more accountability for purchasing processes and performance. Here are three comparisons that executives will, and you should, make to hold your purchasing processes more accountable.
Initial Supplier Selection Criteria vs. Final Supplier Selection Criteria. Sourcing teams often develop supplier selection criteria before soliciting proposals then change the criteria after proposals arrive. While it’s sometimes necessary to change criteria once more details are learned, and I don’t recommend sticking with a plan when you know that the plan is flawed, chronic changing of selection criteria after receiving proposals indicates two things: (a) that it is likely that the criteria is being changed to unethically select pre-determined preferred suppliers and (b) that the purchasing team is not skilled at the basics of successful sourcing. Thus, the percentage of times that selection criteria are changed is a metric that can be tracked to determine accountability and serve as the basis for improvement efforts.
Estimated Savings At Contract Signing vs. Actual Savings At Contract Expiration. When executives sign contracts after sourcing processes, they are usually presented with the estimated savings that the contracts will produce. But estimated savings alone are no longer good enough for today’s executives who desire to gauge purchasing departments’ effectiveness at projecting the financial impact of their decisions and ensuring that savings are realized. Therefore, the ratio of actual savings to estimated savings is another metric that measures accountability and serves as the basis for improvement efforts.
Increased Savings vs. Increased Problems. Inexperienced buyers whose performance is measured solely on cost savings are likely to get into a pattern of always switching to lower-cost suppliers without regard to the sacrifice of quality, delivery, or service. To ensure that proper decisions are made, it shouldn’t only be price that’s compared with a baseline, but also supplier performance. If prices decrease but problems increase, this type of accountability measure can uncover ineffective purchasing processes as well as weaknesses in the way that the purchasing department is measured.
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