Are procurement rule breakers squandering UK business budgets?

Are procurement rule breakers squandering UK business budgets?

Rule breakers in UK businesses could be squandering budgets, using risky suppliers and spending without permission, due to a lack of collaboration with procurement, according to new research by Redshift on behalf of Wax Digital.

An alarming chasm between procurement processes and rules and the spending behaviour of finance, IT and sales & marketing was highlighted by the study, which questioned over 200 senior decision makers in these departments.

While 44% of procurement respondents cited ‘very close’ relationships with the other departments surveyed, only 18% in these other departments agreed, with sales and marketing teams showing the least respect for procurement
processes and rules around selecting the right suppliers.

Daniel Ball, director, Wax Digital, said, “Business functions are not working effectively and closely with procurement experts to source the right suppliers, strategically manage their spending and ensure they are following compliant purchasing processes. This suggests a high level of maverick spending behaviour which can lead to poor value for money, cash flow issues and contract risk.

“Procurement wants to control and influence departments’ supplier choices and spending, however, many of these other departments are pushing back, seeking more supplier and spending freedom and believing that procurement just gets in the way.”

Daniel Ball, Director, Wax Digital

24% of procurement respondents for example said that supplier selection was a joint decision with the department in question, but only 8% in IT, 6% in finance and just 2% in sales and marketing concurred.

Each department surveyed showed different procurement perception gaps, for
example:

  • 54% of procurement respondents say departments follow a formal tender process but only 24% in sales and marketing agree that they do this.
  • 36% of procurement say they shortlist suppliers on behalf of these departments against their business requirements, but only 12% in IT agree.
  • 66% in procurement say they led the finance department’s achievement of cost savings but only 33% of finance agree with this.

Part of the problem is a perception amongst other departments that procurement is more administrative than strategic, even though it typically sees its work covering both in equal measure. For example just 15% of other department respondents saw procurement as mainly or wholly strategic but 46% saw procurement as mainly or wholly administrative.

Procurement teams themselves call their effectiveness into question, with just one in every four viewing their department as ‘highly effective’ and the same number viewing it as ‘less than effective’. Only 4% in sales and marketing view procurement as highly effective.

Daniel Ball, concluded, “We’ve seen many procurement teams across the UK change over recent years, streamlining processes and making it easier for departments to source and buy what they need. However, this research indicates that there is still some distance to go by procurement, or a need for improved communication, before other critical departments understand the benefits of procurement, stop breaking the rules and close the perception gap.”

About the research
The Procurement Perceptions research was conducted by Redshift in March 2015, involving 200 interviews with equal samples of procurement, finance, IT and sales & marketing department decision makers in medium to large UK organisations.