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Why is it difficult to report procurement performance?

Opinion & Analysis
PERFORMANCE is measured by assessing the outcome in relation to expectation over a specified period.

PERFORMANCE is measured by assessing the outcome in relation to expectation over a specified period.

Purchasing and Supply with Nyasha Chizu

Every business unit is expected to report its performance in relation with the targets.

Procurement performance is assessed by the review of the department achievements in relation to the procurement plan that has a direct co-relationship with the budget.

The fundamental requirement for measure of procurement performance is therefore a procurement plan that is supported by a budget. Recalling previous budget reviews under the multi-currency regime in Zimbabwe, the consistent remark was that of non-performance of the procurement function.

Performance of procurement in the private sector is equally affected; most procurement units cannot demonstrate their performance.

What then could be the cause of poor procurement performance, and or poor procurement reporting? Successful procurement programmes suggest historical misconception of procurement as merely a functional responsibility that must be overcome.

Some organisations have adopted best procurement practices in the quest to become competitive.

Best practices are not a guarantee of success, but they demonstrate the required competence to become successful.

Some studies show that companies that reported confidence in their procurement activities and were capable to demonstrate procurement savings from their expenditure had three distinct traits; the system, structure and style that promoted efficient and effective procurement processes.

The best-in-class traits to monitor and report savings has seen the procurement function adopting formal, preferably multi-year procurement plans to project, audit and validate procurement savings.

Multi-year procurement plans as opposed to annual procurement plans provide a basis for benchmarking the performance of the procurement function over time without the need to compare with external activities.

In addition to the system-related trait of using procurement plans, organisational structures have been tinkered to promote best-in-class procurement systems.

The finance function of such organisations has dedicated resources, both human and financial to procurement and they participate as core members of a sourcing team.

Procurement that is guided by a procurement plan and performed in line with the budget ensures that a procurement person negotiates prices for crystal-clear procurement transactions that are paid for as agreed in the procurement contract.

The failure to settle creditors in time inevitably increases input costs as suppliers’ factor in interest rates on late payments or the prices offered include a risk factor of late payment when charging interests is difficult.

This can only be eliminated by a structure that promotes procurement-finance liaison on procurement budget and the procurement plan as it is executed.

It is not just the finance function involvement that is critical to be capable of tracking and reporting procurement savings, systems are also key enablers of procurement performance.

Some organisations have adopted e-procurement and such investment in procurement systems has improved the relationship internally of finance and procurement and external of procurement and suppliers.

Studies showed that the introduction of e-procurement has reduced maverick spending by up to 64% and generation direct savings of up to 7% of every dollar spent. In addition, e-procurement was proven to reduce procurement processing time while helping companies manage risk and costs that might impact supply chain performance and profitability.

A pragmatic shift from the way procurement is viewed from both the public and private sector is necessary to facilitate procurement activities that are capable of generating savings and reporting them appropriately.

Nyasha Chizu is a Fellow of the Chartered Institute of Purchasing and Supply writing in his personal capacity. Feedback: chizunyasha@yahoo.com