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March 9, 2016

Procurement: Achieving compliance without focusing on enforcement: Part 2

In my last blog I discussed how procurement’s evolution has spurred the need for increased attention to compliance. By decentralizing day-to-day purchasing, extending it to organizational “consumers,” the process has been made more efficient — as long as everyone stays within the guidelines. In this post we examine the bigger picture of compliance; that is, aligning procurement processes with broader organizational goals.

Improved Compliance Through Alignment

Let’s face it, generating savings is not as simple as buying the same products and services for less money. Similarly, managing compliance is not only about converting negotiated savings into realized savings. Contracts establish advantageous pricing, but they also protect the enterprise against risk and ensure that necessary service levels and delivery or favorable payment terms are received.

In my previous Procurement Maturity Curve posts on procurement’s relationship with savings, I addressed the “more for less” equation. This makes it possible for procurement to create value either by negotiating lower prices or by getting more in return for the same investment. A similar set of options exists for compliance.

Procurement should be less focused on a goal of bringing all purchasing activity into sync with procedures and more on bringing the organization and procedures into alignment with equal flexibility.

Particularly at higher levels of organizational maturity, achieving compliance is less about enforcement and more about making sure the processes put in place actually match what the enterprise needs from a “big picture” perspective. This requires procurement to better understand the objectives of the organization as well as the full capabilities of qualified suppliers. Bringing the two into alignment should improve compliance not through punitive measures, but by alleviating the need for those measures.

Procurement continually struggles to correct the internal perceptions that we are penny pinchers, try as we might to make the case that we are capable of far more than just generating savings. Most of the enterprise only has contact with us when we are evaluating solutions via strategic sourcing or when they have to make a purchase off-contract. They have no first-hand experience of procurement paying attention to more than the rules and the bottom line.

Keeping in mind that none of our relationships end with the conclusion of a sourcing project, procurement should be open to what we can learn through noncompliance. Just as pain provides important information to medical professionals, chronic compliance challenges should indicate to procurement that there is something wrong with the process, the suppliers, or both.

Visibility Is the Root of Understanding

We can discuss the types and causes of compliance all day long, but noncompliant spend doesn’t magically reveal itself to procurement. It isn’t a different color in spend data, it doesn’t display with red error messages. Procurement has to work hard to identify it.

Ensuring compliance is an area of procurement sleuthing where more systems integration is a significant enabler. Less daylight between spend data and contracts makes it easier for procurement to monitor where the supplier and category don’t match the contracts in place. Working within a single platform also reduces the administrative legwork associated with reconciling different supplier names or category labels.

The Source-to-Pay process is often looked at from a high-level perspective — an encapsulation of the procurement process. It is important to achieve sufficient breadth of process coverage, but it is just as valuable to allow smaller connections between the various steps of the overall process. Compliance is an area where procurement can quickly see the impact of a contained data flow.

It might be easier for procurement to just focus on what others should do differently, especially since we are usually trying to change purchasing habits. But our goal needs to be helping everyone in the enterprise understand why a preferred process or practice was established in the first place.

Assuming most people have the best interests of the enterprise in mind when they act, this makes it possible to achieve the desired alignment — regardless of what the compliance goals of the enterprise are — without putting undue energy into enforcement.

Be sure to check out our entire series on The Procurement Maturity Curve – parts one & two about savings and regarding compliance.

* If you like this blog, you may also enjoy Ardent’s annual State of Strategic Sourcing report, which examines the pressures and challenges facing sourcing leaders today and presents “four pillars of sourcing success.” read it HERE.