Wise procurement is far more cost effective than no spending at all

At the September meeting of the Transport Special Interest Group (SIG), the question of sourcing and procurement was laid bare – with special emphasis on black economic empowerment (BEE).

 

With emphasis being placed on a company’s BEE procurement policy as a prerequisite for attaining and maintaining a BEE rating, it becomes ever more politically (and – due to the pervasiveness of politics in this country – commercially) important to understand exactly what the process of procurement involves.

Led by Greg Buckley, Sourcing & Procurement Business Unit manager for Volition, the discussion offered interesting insights.

According to Buckley and the majority of people involved in the procurement arena, the process is far more involved than simply being a ‘company buyer’. Whereas the function of the latter is important, it is very much a reactive process, responding to reported requirements and having these fulfilled by an approved supplier.

The suggestion that any company’s chief procurement executive should have a permanent seat on the board indicates the importance that is attached to the correct handling of the procurement process in an organisation.

And rightly so; many organisations’ annual procurement budgets run into hundreds if not thousands of millions. This money needs to be allocated correctly and it needs to be spent strategically, ensuring that the company’s objectives are met – including its BEE rating maintenance.

Thus, procurement as a function within an organisation takes on an overtly strategic role and, as such, the procurement functionary(ies) needs to be fully cognisant of the goals set by the company within any accounting and reporting period.

It is equally incumbent upon the procurement function to be in a position to advise the organisation of the alternative strategies that could be adopted to achieve such objectives and areas where routes other than direct or indirect purchasing could have a more beneficial effect on the bottom line, than where a directive for capex is slavishly followed by a legion of clerks in a warehouse in the basement or far enough away from the company’s headquarters for its traditional disorganisation not to be an embarrassment.

Frankly, if the ‘procurement department’ is holding enough stock to create the impression of disarray, then the company is doing it wrong anyway.

Nor does BEE procurement mean covering several square metres of immediately visible wall with township art.

BEE procurement should not have any different criteria to the normally accepted good governance in procurement – apart from adhering to the principle that the ownership of the supplying company should meet its own BEE rating requirements.

If run properly, the procurement function should be a process whereby the company saves long-term money by making the correct buying, renting, hiring or outsourcing decisions at the right time. And yet, despite the volume of funding that may be flowing via the procurement function, there should be a strong and vigilant resistance to any call for the function to be treated as a profit centre.

If it makes money for the company, this should be as a result of a prudent and timely purchasing policy rather than as a result of abandoning spending (or worse, purchasing sub-standard product) in order to reflect an accountant-friendly bottom line.

Focus on profit rather than wise spending generally results in a far more costly procurement process in the long term as the mean time between failures for cheap products contracts in proportion to the savings achieved.

The subject of academic study and commercial trial and error, the entire procurement question is still a work in progress and the results of ongoing experiments with a variety models are eagerly awaited by a commercial sector keen to achieve the biggest bang for every buck it spends.

John Doolan