What To Do When Procurement Goes Rogue

No business has a perfect procurement system. Rogue spending can be as simple as a quick refill of Post-its or as burdensome as striking a deal with a high-risk supplier. Either way, companies are constantly challenged to manage their procurement and spending habits, or else risk wasted budgets.

There are measures companies can take to improve their procurement practices, but if a company is unaware, it has a problem: poor spending habits can run rampant.

Procurement Disconnect

New research from U.K.-based digital procurement solutions provider Wax Digital, conducted by Redshift, revealed that nearly half of procurement officials believe they have a “very close” relationship with other departments in their corporations – namely IT, finance, sales and marketing officials – but just 18 percent of respondents in these latter departments agreed.

What that means, researchers concluded, is that there is a massive gap in communication between procurement and the rest of the company, an “alarming chasm” that Wax Digital said can create dangerous trends of companies mismanaging funds and rogue spending. Worse, with so many procurement officials believing that communication with the rest of the department is strong, many businesses across the U.K. are likely unaware of this issue.

This inconsistency revealed itself in other ways, too.

For example, about one-quarter of procurement officials said that the process of selecting a supplier is a joint decision with another department. Just 8 percent of IT respondents, 6 percent of finance respondents, and 2 percent of sales department respondents agreed to this perception of collaboration, however.

Further, more than half of procurement officials said there are clear, formal tender processes in place to guide the procurement process. Less than one-quarter in sales and marking departments said the same.

While one-quarter of procurement officials said that their department activities are “highly effective” and operate as a strategic business operation, just 4 percent of respondents in sales and marketing agreed.

According to Wax Digital director Daniel Ball, these findings reveal a major disconnect between the procurement department of U.K. corporations and other key players in the company. If these departments all operate without being on the same page, it can lead to unsupervised spending.

“This suggests a high level of maverick spending behavior which can lead to poor value for money, cash flow issues and contract risk,” Ball said. “Procurement wants to control and influence departments’ supplier choices and spending, however, many of these other departments are pushing back, seeking more supplier and spending freedom and believing that procurement just gets in the way.”

Where To Start

According to Wax Digital, an inability to bridge the gap between procurement officials and other aspects of the company is a great way to squander corporate budgets and work with high-risk suppliers. So how can companies solve this issue? Additional research suggests it may not be a clear-cut solution.

Maverick procurement within corporations is nothing new. Earlier findings from Supply Management and Expense Reduction Analysts released in April found that 71 percent of procurement officials agreed that managing the procurement of employees who are not part of the procurement department is their No. 1 challenge.

Procurement departments’ influence over other departments’ spending is limited. The April research found that just 51 percent of procurement officials have influence over the procurement practices of processional services and business process outsourcing across their company.

But Redshift’s research suggests that this problem can go both ways. While other departments may fail to adhere to the rules as established by procurement executives, Redshift also found that procurement departments themselves can conduct business misaligned with the spend management rules established by other parts of the company, like the finance or IT department.

Survey respondents in the report from Supply Management and Expense Reduction Analysts agreed that businesses should provide procurement training for non-procurement officials with purchasing power. Others called for procurement teams to take control of all spending decisions made within a firm.

But according to Wax Digital, the solution may be more complex than simply allowing procurement teams to take full control of purchasing – and that solution should fall on the shoulders of procurement teams and other departments alike.

“We’ve seen many procurement teams across the U.K. change over recent years, streamlining processes and making it easier for departments to source and buy what they need,” Ball said. :However, this research indicates that there is still some distance to go by procurement, or a need for improved communication, before other critical departments understand the benefits of procurement, stop breaking the rules and close the perception gap.”