HomeOpinion & AnalysisPurchase and Supply: Performance risk of the procurement unit

Purchase and Supply: Performance risk of the procurement unit

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What can be measured is what can be controlled. The performance of a procurement function is difficult to measure. It is the desire of every managing director to build an effective and efficient procurement unit. Very few directors understand the efficiency and effectiveness of procurement measures.

By Nyasha Chizu

Effectiveness is about doing things right whereas efficiency is about doing the right things.

Effectiveness relates to the ability of the procurement unit to minimise wastage of time and resources and implies that the procurement is procedural. Effectiveness is about doing the right task, completing it and achieving goals.

On the other hand, efficiency relates to the implication of costs in a procurement process. Efficiency is about procuring goods and services in an optimal way, doing it faster or in the least expensive way and it does not take into account if it is the right product required, it only measures whether the right or wrong procurement was acquired optimally.

An achievement of a procurement unit has a basket of measures that if efficiency and effectiveness measures are not combined, the results would be deceiving. The basket of pointers includes financial, economic, quality, sustainability, compliance measures and the level of corruption in procurement.

For the indicators to be efficient, the information technology principle of “garbage in garbage out” is pertinent. This therefore requires keeping a certain level of quality of procurement records.

Most procurement records easily demonstrate the number of contracts concluded and their respective value.

This forms the levels of indicators that can be assessed. Databases for relevant procurement data are required. The procurement data is collected from the procurement transactions.

For effective public procurement performance measurement, the level and type of transactions that can be evaluated need to be clearly indicated in the legal framework otherwise the system risks failure to measure its performance. Procurement data in the private sector can be demanded by superiors without any legal recourse.

The public sector requires a legal basis for issuing out information.

The incentive to keep relevant procurement data is important. One might be interested in measuring “efficiency”, the speed with which processes are completed. Approval mechanism of a procurement process in both public and private sector translate to a certain value.

The delay should amount to a certain costs in every procurement system. The costs could be lost customer, lost sale, lost revenues and lost profits in private sector and lost target, non-availability of public service and lack of public confidence in the public sector.

The other incentive could be the ‘price’ of a procurement transaction. Price could be assessed in relation to the market price. Market prices will, therefore, be the base price. Market price is not static and therefore historical price information is not sufficient though a basis of evaluation of price performance. Also to note is that procurement process influences the price, the shorter and transparent the process, the reduced prices achieved and the opposite is true.

The final measure for today’s discussion is then the process indicator. This involves how many times the process is used and why the process is preferred.
The measures can be both quantitative and qualitative. This could measure a number of variables such as bids received, at what cost, after how much time was taken for a particular process.

It is then evident that procurement data collection is not enough, reporting that data is a necessity. For effective control of procurement activities, the reports would need to be analysed by some authority.

Nyasha Chizu is a fellow of the Chartered Institute of Purchasing and Supply writing in his personal capacity. Feedback: nyashachizu@harleyreed.com; Skype: nyasha.chizu

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