Best practices available in procurement of consultancy services

The following best practices have been adopted by many leading organizations to form strong foundations in procurement of consultancy services.

Establish a governing procurement council
The purpose of this council is to give direction and help align procurement and supply chain strategy with the company’s overall strategy. The council’s membership should include the head of the procurement function corporate executives, the head of departments and other influential organization leader. The procurement function often struggle for recognition because their objective’s and strategies differ from their company’s stated objectives and strategies.

A governing council can prevent that from happening by providing constant, consistent validation that the supply chain strategy directly correlates with corporate strategy. The council provides an effective forum for cross functional communication. It creates an
opportunity for departmental leaders to provide a supply chain management leadership with information regarding future strategy and projects.

Properly align and staff procurement function
It is challenging to organize the procurement function in a way that will maximize effectiveness and brings commensurate benefit to the company. The placing of procurement, logistics, contract management and demand planning and similar management functions under the procurement leader is a relatively fair approach. Correctly staffing the procurement function is vital to success whatever the structure. Elevating staff members supply chain skills and knowledge is always a priority.

Make the technology work for the organization
Many companies select the software they hope will make them more efficient and structure their workflows and processes around that chosen technology. Instead, they should first review the process that need improvement and only then select that best satisfies their process needs. Many companies buy first then figure things out later. The best companies understand that the system should help them manage the procurement function. They find a way to use technology to produce beneficial information without having to perform various work around to extract and view the data, they have adopted strategies and mechanisms to get the greatest benefits from technology.

Establish alliances with key suppliers or consultants
Best organizations work closely with suppliers long after the deal has been signed. In most circles today this is called supplier relationship management; but that implies one way communication and it simply means telling the supplier what is to be done and how to do it. 2 way communication that requires both the buyer and seller to jointly manage relationships more effectively.

An appropriate term for this best practice is known as “alliance management” with representatives from both parties working together to enhance the buyer seller relationship. The four primary objectives of an effective alliance management program with key suppliers

  • Provides a mechanism to ensure a relationship stays healthy and vibrant.
  • Creates a platform for problem resolution.
  • Develop continuous improvement goals with the objective of achieving value for both parties.
  • Ensure that perfect measurement objectives are achieved.
  • Engage in collaborative strategic sourcing

Strategic sourcing is corner stone of successful supply chain management, but collaborative and strategic sourcing initiative produces even better results. Rather than consider strategic sourcing as just a matter of procurement department, best organizations get internal customers actively involved in the decision making process. More importantly most organizations solicit feedback and information regarding their objectives and strategies from those customers.

This approach not only ensures availability of supplies and consultancies but also results in lower total cost, streamlined processes and increased responsiveness to customers changing needs.

Focus on total cost of ownership, not price
Procurement teams at best organizations are abandoning the out-dated practice of receiving multiple bids and selecting a supplier on price. Instead they consider many other factors that may affect the total cost of ownership. These factors include: Operations, Training, Maintenance, Environmental, Quality, Warehousing and transportation and so on. Identifying the total cost of ownership requires looking at the entire process of procuring and consuming the product/service something that can only happen with cooperation and input from both the buyer and seller.

Establishing the total cost of ownership mind-set is a goal that the procurement function needs to embrace and perpetuate throughout the entire organization. It may not be easy to convince the organization leadership to truly prioritize value over price.

Put the contracts under the procurement function
Procurement teams often negotiate significant potential savings during the sourcing process but never fully realize them, reason being this may vary but often includes failure to communicate contract terms to the affected department and units under failure to monitor
contract compliance.

Too often, the executed contract is filed away and forgotten. More companies are moving the responsibility contract to the procurement function rather than leave it unattended. One benefit of this is ensuring the contracts are collected and maintained in a central repository.

The migration of the contract allows the head of the procurement function to more effectively leverage the organization spend, particularly in the area of services where there is a greater opportunity for reduction and risk mitigation. Finally, take green initiatives and social responsibility seriously. Buyers and consumers are taking environmental impact into consideration when they choose
supplier/service providers. More RFP ask suppliers/service providers about their green initiatives. Buyers/consumers are also considering social responsibility when making purchases. Social responsibility consists of a framework of measurable corporate policy procedures that result in behaviour designed to benefit the individual, organization and community. Social responsibility is playing and increasingly significant role in best procurement management decisions, in purchasing and risk evaluation.

4. Process Benchmarking
It gives numerical standards against which a client’s own processes can be compared. These are usually determined via a detailed and carefully analysed survey and interview. Clients can then identify performance gaps, prioritize each action items and then conduct
follow up studies to determine the methods of improvement. Performance benchmarking enables procurement managers to assess their competitive positions via product and service comparisons. It usually focuses on: Elements of price, Quality, Service Features, Speed, Reliability and other performance characteristics.

5. Strategic Benchmarking
It identifies fundamental lessons and winning strategies that have enabled high performing companies to be successful in their market places. Strategic benchmarking examines how companies compete and its ideals for corporations with a long term perspective.

Benefits of Internal Benchmarks
Identifying strengths and weaknesses
Shared learning across divisions
Results-led change and restructuring
Being better prepared for external benchmarking
It uses similar language, mechanism, system, culture, mind-set and top-management support.
There is considerable ease in the access to data.
There are no problems in establishing communication between units.
The process does not involve confidentially problem in accessing data.
The returns of benchmarking efforts are relatively quick.
The approach is relatively silent, low profile, and a low threat affair.
It provides a test bed for quicker improvement.

Disadvantages of Internal Benchmarks
It lacks external focus and may foster complacency and lack of seriousness.
Internal weaknesses, such as cultural problem, leadership problem, etc., tend to remain unaltered.
The results are generally marginal or just adequate improvement is visible.

Benefits of External Benchmarks
An organization can compare with the best practices.
It helps organizations learn what type of practices work and they can be successfully implemented.
They provide a basis for reviewing existing practices and developing new practices.
They also help managers to establish a strategy and set priorities.

Disadvantages of External Benchmarks
Danger of complacency and arrogance. Many organizations tend to relax after excelling beyond competitors’ standards, allowing complacency to develop. The realization of having become the industry leader soon leads to arrogance, when considerable scope for further improvements remains.

Benchmarking reveals the standards attained by competitors but does not consider the circumstances under which the competitors attained such standards. If the competitor’s goals and visions were flawed or severely restricted due to some specific factor, an organization by benchmarking such standards runs the risk of trying to ape such flawed standards or settling for extremely low standards. Most of companies keep an eye on their competition instead of their own growth; it is quite clear for all the company that such type of obsession with another company cannot lead the company anywhere.

Challenges in Benchmarking for best practice in procurement of consultancy services There are various difficulties involved in the process of improving by learning from best practices. They include:

  1. Having sufficient knowledge of your own system and processes to be able to compare against others.
  2. Knowing where to find best practices.
  3. Knowing whether a particular practice is suitable for your situation.
  4. Adapting the practice to your organization.
  5. Finding the time and other resources for all of the above.
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