AUSTRALASIAN PROCUREMENT - A CHALLENGING ROLE

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1 RESEARCH PAPER AUSTRALASIAN PROCUREMENT - A CHALLENGING ROLE Welcome to the first in a series of research reports on procurement in Australasia, from Financial Review Business Intelligence in association with TenderLink. EXECUTIVE SUMMARY Australasia s professional procurement landscape is in a state of flux as organisations grapple with the challenges of delivering the important benefits that transparent and streamlined procurement practices can offer enterprises of all scales, in all sectors. In late 2012, Financial Review Business Intelligence conducted a survey involving 300 procurement professionals throughout Australasia. This study revealed the following key issues and opportunities facing the profession today: 1. Procurement professionals operate under multiple organisational frameworks no single model dominates the local landscape 2. There are significant differences in terms of the roles and responsibilities of procurement professionals, when compared across industries 3. Heightened expectations regarding transparency have spawned challenges for procurement professionals who have to navigate the often narrow path between probity and pragmatism 4. There is a clear disconnect for many enterprises between what management and best practice expect and what current structures, tools and time permit 5. Faced with an increasingly complex and volatile business landscape, the procurement function often lacks the resources, training and access to skills needed to deliver optimal results 6. There is an important opportunity for procurement professionals to engage senior management in the critical discussion about the value which can be liberated by proper investment in bestof-breed procurement frameworks, policies, tools and skills

2 ONE SIZE DOES NOT FIT ALL The survey revealed that the structure of the procurement function varies widely in Australasia, with no common patterns occuring across sectors. Many procurement structures exist Although 34% of respondents said procurement staff were, or were mostly, in one team, 26% noted that procurement staff were not centralised but, rather, embedded in the departments they served. One in five organisations assign procurement responsibilities to staff who also have other responsibilities, while 13% report they do not have any dedicated procurement staff. Some sectors in particular appear to have a fragmented organisational structure which may place at risk the benefits associated with dedicated and highly focused procurement practices. For example, almost a third of Government procurement staff have additional non-procurement responsibilities. That is in stark contrast to the electricity sector where 70% of respondents said procurement staff mostly worked in one team and only 7.7% reported staff had other responsibilities. All procurement staff in one team Procurement staff operate within the departments or teams they work with Most procurement staff are in one team Procurement staff have other non-procurement responsibilities We don t have dedicated procurement staff, purchasing is managed as required 13% 20% 20% 26% 34% Clearly there is no benefit in taking a cookiecutter approach to procurement structures and it would be unhelpful to attempt to impose a single organisational structure on the function. However, whatever form the organisational framework takes, the diversity of procurement structures highlighted in this research show the need for tools and processes to encourage clear communications across diverse organisational structures. Procurement staff work on purchasing tasks exclusively 8% 0% 25% 50% 2

3 ROLES AND RESPONSIBILITIES VARY BY SECTOR Just as the research identifies the lack of a single framework for the procurement process, it also reveals that there is no single job description for a procurement professional. The survey revealed a broad spectrum of roles and responsibilities which procurement professionals are expected to fulfil. Again, evidence of uniform best-practice is lacking. professionals evaluate bids, only 55% of procurement staff working in education have this responsibility. The roles and responsibilities of procurement staff vary widely across sectors, pointing to not only structural differences, but also the differing requirements that exist across the sectors surveyed. Overall, three quarters of respondents said procurement staff evaluate bids, and almost two thirds build supplier panels and use formalised pre-compliance systems. This, however, masks the deep differences uncovered in individual sectors. Some common roles and responsibilities Does procurement evaluate bids? 77% For example only 35% of health and community procurement professionals are involved in building supplier panels compared to a 61% average across all sectors. Also, while almost 80% of mining respondents report using formalised pre-compliance systems, only half of the transport sector follows suit. Public sector procurement professionals, meanwhile, lead the pack when it comes to building supplier panels, with 73% of respondents in local, state and federal government acknowledging this as a key responsibility. Finally, while 86% of construction sector procurement Use formalised precompliance system? Build supplier panels? 62% 61% 0% 25% 50% 75% 100% PROBITY, TRANSPARENCY AND OTHER CHALLENGES When invited to describe the most challenging aspects of managing the procurement function in their organisation, an unexpectedly high 70 % of those surveyed chose to respond to the open-ended question. The insights they delivered are significant. The most commonly noted challenge was associated with meeting compliance and probity requirements. Specific mentions were made of difficulties in managing large or long contracts, ensuring the availability of an audit trail and meeting value and compliance expectations. Given that two thirds of procurement staff in this survey operate in a highly decentralised model the pressures of consistency, compliance and meeting governance requirements seem especially challenging. The second most often mentioned group of challenges were a perceived lack of planning and strategy for procurement, change management and other organisational issues, including access to skills and training. Some organisations also noted the difficulties associated with managing suppliers based overseas or dealing with long-term suppliers who on occasion embraced the status quo and were consequently less innovative than rivals. While the benefits of long-term supplier relationships are clear, respondents to the survey noted the need to regularly refresh contracts with incumbent suppliers in order to avoid complacency creeping into the relationship. A significant number of respondents also pointed to a lack of adequate systems to properly support procurement activities. 3

4 DISCONNECT BETWEEN EXPECTATION AND REALITY The chart opposite identifies the most significant challenges faced by procurement professionals. These challenges are exacerbated by the fact that they occur within increasingly decentralised procurement structures, thus adding an extra layer of difficulty to achieving optimal outcomes. This is compounded by a perceived lack of senior management involvement in crafting or supporting the introduction and enforcement of an appropriate procurement framework. Challenging aspects of the procurement function Difficult to meet compliance and probity requirements Lack of policy and strategic planning, organisational issues 17.4% 28.2% Most procurement professionals understand that with the appropriate tools and management support, devolved procurement can deliver flexibility and efficiency without sacrificing probity and economy. Consequently there is little appetite to return to a centralised procurement structure. However, survey respondents acknowledge that they have yet to establish the robust framework needed to properly manage devolved procurement. Many staff involved in procurement, many don t understand issues Getting / keeping staff. Lack of resources 15.5% 14.6% A perceived lack of management focus on the procurement function is also frustrating to many professionals. While they understand and acknowledge the complex balancing act which senior management has to perform, they worry that procurement is not receiving the attention it deserves, especially given the function s ability to positively impact organisational performance. Without that focus and attention, respondents were concerned that staff engaged in procurement might themselves be less rigorous in their embrace of proper process and practice. Other respondents noted that it could be challenging to establish the appropriate nexus between bestpractice procurement processes and swift, pragmatic and cost-effective procurement. Lack of time to perform tasks 10.3% Inadequate systems 8.5% Meeting budget, cost, timeframe requirements 6.1% 0% 25% 50% There was also a perception among some survey respondents that senior management did not adequately understand or acknowledge the fact that effective procurement could be a contributor to profit, and should therefore not be viewed as a negotiable cost centre. In the words of one respondent; The biggest challenge is ensuring executive buy-in to regulate procurement protocols, and the training and education of staff on relevant procedures, thresholds and value-for-money concepts. 4

5 PROCUREMENT PRACTITIONERS ARE VOCAL ABOUT THE CHALLENGES The lack of enterprise level procurement policy and strategic planning is exacerbated by the wide range of staff involved in procurement who bring disparate levels of skills, experience or desire to achieve best practice procurement outcomes. Here s what they said... In some cases the problem of staff not following procedures is worsened by management failing to enforce procedures, or doing so selectively. Only by introducing and adhering to more rigorous and centre-led procurement policies will it be possible to reduce the ultimately unhelpful back door selling by suppliers, and ensure that good value, agility, transparency and probity can be assured. Not surprisingly, the multiple challenges of wrestling with incomplete strategy, decentralised processes and inconsistent or ill-defined structures, leave many procurement professionals feeling frustrated that, despite their efforts, their profession commands less respect within their organisations than is deserved. Respondents emphasise that, if armed with the appropriate tools and resources, they are able to provide rigour in purchasing, ensure good value for money and meet important requirements such as certainty of supply and quality. Instead, some describe themselves as being viewed as back room pencil pushers, even while they remain ultimately responsible for audit and compliance requirements especially in public sector organisations. For some, a few clear policy or strategic guidelines to the organisation as a whole would make a significant difference in how procurement professionals operate and the value they are able to deliver. 5

6 A RICH SEAM OF PROCUREMENT OPPORTUNITIES This uniquely Australasian research, surveying a significant cross-section of procurement professionals, has identified key issues organisations need to negiotiate as they journey toward best-practice procurement. Organisations need to carefully consider whether: 1. The structure of procurement in their organisation accords with purchasing needs. 2. Their processes and controls account for the increased risk that may be introduced when using a decentralised model. 3. Management considers strategy for procurement alongside other key financial and strategic analysis. 4. Management understands and measures the significant value and volume of procurementled transactions and therefore recognises the opportunities that improved probity and risk management practices would deliver. 5. The correct tools are in place to provide the best procurement outcomes. Does management understand the need to invest in best-of-breed software solutions to support procurement in the same way as they appreciate the need for sophisticated finance or HR software? As this survey has revealed, procurement professionals remain highly engaged and committed to the ongoing journey to best-practice. Armed with this more granular understanding of the procurement landscape, procurement professionals will be better positioned to engage senior management in the critical discussion about the value which can be liberated by proper investment in best-of-breed procurement frameworks, policies, tools and skills. METHODOLOGY A quantitative survey of 300 procurement professionals conducted in August and September 2012 revealed important insights about procurement and the pathways to best-practice. Responses were collected from all levels of government, plus a broad spectrum of industry, including mining, education, health, community services, construction and transport. Financial Review Business Intelligence, part of the Financial Review Group at Fairfax Media, specialises in research in the business sector and especially among business owners and senior decision makers. If you would like to know more about Financial Review Business Intelligence, please contact: Beverley Uther, Principal Analyst & Research Manager, , beverleyu@fairfaxbm.com or visit BUSINESSINTELLIGENCE TENDERLINK Established in 1994, TenderLink has grown to become one of the largest web-based procurement systems in Australasia. TenderLink offers a variety of purchaser-and supplier-oriented services including: Web-based e-procurement solutions Subscription-based tender notification services Tender response education and training Currently over 300 leading government, public and private sector purchasers use TenderLink s e-procurement system to significantly reduce their procurement costs, increase the speed of their procurement cycles and improve supplier relationships. And they achieve this within an externally audited system providing the highest levels of security, transparency and probity. If you are a procurer of goods and services and are considering a shift to web-based procurement technology, then contact TenderLink. Phone: (AU) , (NZ) info@tenderlink.com Web: 6