Believe could not be verified: control of supply department

Author: Yanina Gavizha

Annually companies lose a lot of money of the abuses and unscrupulous performance of their duties by employees of supply department.

To save and to make effective use of cash, many companies use control and monitoring system for procurement process. Of course, such systems have their own specifics and features, depending on the scope of business and the company’s chosen strategy.

To build an effective control and monitoring system of supply department, it is necessary to pocus on four processes:

  • Procurement planning
  • Supplier selection
  • Procurement monitoring and contractual relations
  • Employee motivation

1. Procurement planning.

It’s about the procurement budget and the needs. This process will help to determine the volume of procurement, their quantity and cost . And it also will allow to plan schedules on the choice of suppliers, purchase and goods delivery, without interrupting the operational activity of the company.

You might run into the fact that unscrupulous supply managers can buy goods from the “right” suppliers in quantities exceeding the volumes for production and operating activities, without planning.

Therefore, procurement planning is necessary to take into account not only planned quantitative indicators (tons of sand, liters of gasoline, meters of pipes, etc.), but also the amounts allocated for the purchase of these volumes of goods.

To prevent abuse by supply managers, the company must also approve an economically justified procurement budget (plan).

2. Supplier selection.

Inadequate attention in this process also encourages supply managers to choose the “right” supplier, to conclude a deal and to receive their benefits. Especially, when it comes to large purchases, volumes and amounts.

Approving the list of suppliers, among which the choice is made for the best price proposal, should be provided by commission (the list of employees and divisions may be different for each particular company):

  • employees of supply department;
  • employees of the economic and financial service unit;
  • security personnel;
  • legal-service personnel.

Often large companies create collegiate bodies to decide on the choice of suppliers, and the process itself is clearly regulated: it has its own principles, tools and criteria for evaluating suppliers. And finally, the decision to choose a potential supplier is taken collectively and approved by the management.

3. Procurement monitoring and contractual relations .

It should be noted that with the procurement plan drawn up and selected suppliers, do not forget of the monitoring the ongoing procurement. Monitoring of budget process and working with suppliers should be continuous and efficient. For example, in agreeing on a particular purchase, it is necessary to check its feasibility and need . Periodically, companies review the procurement plan and it is normal, especially of the companies whose procurement plan is “similar” to the last year, without analysis and understanding in real need.

Monitoring of procurement planning allowed by the reports of supply department. The management of the company can analyze from them how much the price of the purchased goods has changed, the fulfillment of the volumes and terms of purchases, the discounts received and what is the saving from them.

Monitoring of suppliers is also needed for estimation of market value of purchase and compliance with its level. Monitoring on suppliers can (and better – should) conduct disinterested in purchases subdivision (safety, finances, audit) of the company.

Monitoring instruments, can be:

  • comparison of prices for other suppliers
  • a price request from the same suppliers on behalf of a “non-existent” company
  • comparison of prices with similar purchases (public publication, public procurement)

This monitoring will allow to find out the real price for goods and get understanding as far as a supplier can offer “interest” for supply managers. As a result, it is necessary to conduct a price analysis of concluded contracts and compare it with the results of the conducted audit.

The results of such monitoring are directed to the company management for acceptance of corresponding decisions.

4. Employee motivation.

To prevent abuse and reduce the corrupt component, the supply department needs to introduce a motivation system. Employees need not only to “wean” take kickbacks, but also to interest in “transparent” work, performing their duties for the benefit of the company. For this purpose, basic KPI determine for workers (level of providing of necessities of subdivisions, optimization of purchases cost, execution of purchases plan, etc.) the performance of which can bring the praiseworthy estimation of guidance, and as a result, annual bonus, promotion and etc.

The system of control and monitoring of procurement activities is effective when processes are constructed, regulations and procedures are developed, and recommendations for them are carried out by all employees of supply department.

Managers should be interested in the search of the best offers and suppliers, obtaining discounts for the company and reducing the costs of purchasing goods. Management should take an interest in the procurement process, participate in the selection of suppliers and market monitoring.

And remember: a motivated employee is a “transparent” worker!

Yanina Gavizha

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