By Mira Ristovich, Founder of MRC, a consulting firm that assists with various end-to-end projects, and Senior Associate at Bespoke Group Africa, an organisation dedicated to the strategic procurement outsourcing of projects.
Two decades after I began my work in procurement (I was involved in business performance management and measurement prior to joining the procurement family), I can still remember how surprised I was to find that many business owners believed that not using an allocated budget meant that they were saving money.
Unfortunately, this kind of thinking still exists.
Procurement practitioners have a very hard time educating businesses to spend budgets according to allocations. To procurement, it is very clear that by not spending an allocated budget, not only are you not saving, but you are probably withholding a critical function from the business.
Saving is a tangible act, but not spending a budget at all is not an act of saving. Failing to spend a budget thus cannot be seen as saving.
To explore this topic further, let us consider an anomaly to the above: whereas not spending an allocated budget does not equal a saving, not spending a budget when no defined objective has been set can, indeed, be seen as a saving.
I would categorise no-defined-objective spend into three groups:
1. Requests for sourcing without a clearly-defined requirement: preventing the start of a project when a business does not have a clear scope and outcome in mind can be claimed as a saving.
2. Requests to procure wrong solutions: procurement should not accept a poorly-defined scope; it must insist that businesses spend more time defining requirements. Stopping the appointment of a vendor bringing an incorrect solution can be claimed as a saving.
3. Requests to source projects that could be better executed internally: I witnessed during my career many cases where executives placed more trust in external resources’ knowledge and expertise than they did in their own employees. Sometimes internal resources lack capacity, but instead of understanding internal issues and resolving them, project owners tend to embark on a sourcing project and bring in an external company to do the job.
I have seen too often how in these types of scenario, most businesses went ahead and spent money on external sourcing. Spending a budget that is not linked to a clear requirement is often the culprit behind incorrect business practice and behaviour.
Lacking a clear scope also prolongs the sourcing process. And, at the end of the process, procurement may often be blamed for the incomplete/incorrect outcome of the process.
Case in point
A while back, I was on a project team tasked with scoping the resolution of a sales problem within the telecommunications industry, using the customer approach applied by an international entertainment company. My two business partners on the project both had experience with the international entertainment company and they were adamant that the entertainment company’s approach was the solution.
My own analysis told me that applying a sales solution from the entertainment industry to the telecommunications industry, which is different and has completely different challenges, was not a solution. However, my two business partners were very persistent and pushy.
I managed to bring top executives from both industries to the discussion table, at which point the scoping project was stopped. I claimed a saving of hundreds of thousands of dollars for a project which we did not do.
This behaviour draws me to a crucial question: what role should procurement play?
The role of procurement
Procurement should guide businesses in formulating a clear scope that is easy for potential suppliers to understand and to respond to. But this is easier said than done – the most difficult part of the process is to convince devoted business owners not to begin this type of process in the first place. Convincing them to first understand and clearly articulate their requirements is met with hard push-back.
To summarise: failing to spend an allocated budget cannot be counted as a saving. However, stopping projects that are not linked to a clear business requirement, or which do not have a solid reason for sourcing from external partners, is a saving.
As a procurement practitioner, my role as a trusted adviser was to protect businesses from employees whose aim was to achieve their own individual goals even at the expense of the business. This required me to understand the matter and to facilitate the process of making businesses understand the matter before a scope is formulated. If this was impossible or the outcome would not bring benefits to the business, I would find a sponsor to help me put a stop to no-purpose tenders. In such cases, I proudly claimed the amounts as savings.
Get in touch with Mira at email@example.com.