Procurement is an important process for any organization that depends on external suppliers of raw materials. But it is a pain point for financial and managing directors: there is always a risk of choosing an unscrupulous supplier. How to audit your procurement system and reduce costs?

In practice, the procurement process is often overgrown with additional approval sub-processes, some procedures are omitted as “unimportant”, and functions are duplicated, which reduces its effectiveness and creates risks in related processes. There can be many reasons for an inefficient procurement chain. For example, your employees spend a lot of time doing manual mailing lists. Optimize order sourcing by automating processes (for example, creating automatic mailing lists) and you will save time for your employees.

Here are some markers by which you can determine that the procurement process is not working effectively enough:

  • The business unit does not receive feedback on the results of the tender, and information about it is not recorded or stored anywhere.
  • The selected suppliers, despite decent experience, do not cope with the tasks.
  • There is repackaging in warehouses.
  • There is no understanding of the level of risks when interacting with a particular supplier.

To debug the procurement process, leveling the risks of fraud and the purchase of goods (works, services) of inadequate quality, it is worth conducting an audit.

How to conduct a procurement audit in your company

First of all, this is a review of the supplier selection process and the development of recommendations for its improvement. At this stage, the focus is on the business process itself.

Secondly, it is a retrospective analysis: the contractual base, the base of won competitions, its clustering, and checking individual cases for the presence of contractual tenders and possible inattention regarding the supplier’s experience or its production and technical base.

An important component of the revision process is market analysis and the selection of a pool of additional suppliers that diversify the current base.

The audit allows you to update the rules of the supplier selection process, as well as set up the processes for their evaluation and selection. In general, it is highly desirable to carry out a procurement audit before automation.

1. Conduct interviews with responsible persons and define the objectives of the procurement process. Of course, if the interview is conducted by management, the risk of hiding the factual situation is higher than when conducted by colleagues of the same level or even by an outsider. During the interview, determine the trigger event of the start of the business process and its results, forming a pool of problems.

2. Analyze the system of motivation for top and middle management: in what part are the cost efficiency criteria formed and whether they are included in KPI. Thus, any performance indicators can either motivate or demotivate “prudent” purchases.

3. Form a sample of purchases of previous years in the areas of purchases (commodities and materials, services), and group them into separate clusters.

4. Analyze and formulate the problem field for specific procurement procedures. As a rule, first, a list of point problems is formed, which are received during the interview:

  • lack of application forms or their systematic disregard;
  • inefficient inventory planning system or its complete absence;
  • the absence of those responsible for the order and receipt of closing documents, etc.

5. After a retrospective analysis, analyze the market, take a snapshot of the current situation, and ask suppliers about the pricing policy of past years to verify or refute the hypothesis received. Make an extended list of suppliers and enter it into a single database.

6. Calculate the financial model for automation and the economic effect of its implementation within this business process. As part of the terms of reference, all the necessary elements are structured: modules of automated routes for negotiating suppliers, logging negotiations, and fixing received proposals, as well as stories of interaction with the supplier in the form of an attachment to his card.

7. The final stage is updating the regulations and preparing the basis for automation. Collect unified directories of purchased goods and services, unify the application form, distribute areas of responsibility, and prepare job descriptions for employees. Conduct iterative fly-outs, online demos, and implementation meetings.