Policies with Teeth

Institute for Supply Chain Management

June 7, 2012
Presenters
Daniel Abichandani Chris Johnson
Manager, Senior Consultant,
Deloitte Consulting Deloitte Consulting

• Daniel Abichandani is a Sourcing and • Chris Johnson is a Senior Consultant in

Procurement Specialist in the Toronto Deloitte’s Supply Chain Practice in Toronto
consulting practice
• Experience in cost reduction, planning
• Deep understanding of sourcing and software, process improvement, and spend
procurement strategy and implementation analysis for various clients through his role
and has public sector experience with the with Deloitte.
Ministry of Government Services and
Canada Post.

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Agenda
• Overview of Common Procurement Policies

• Putting Teeth in Procurement Policy

• Keep it Simple
• Timing is Everything
• First Impression

• Case Study – Strengthening the Procurement Function

• Final Thoughts

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Key Policy Elements

Policy
A means to enforce
policy compliance
Embedded in the
process Make it easy for
Clear, concise Escalation /
and BUs and users to
Repercussions
communicated adopt to change
Procedure Process
Transparency in
reasons for change, Timely and accurate
BU/User Friendly information to gauge
requirements and
benefits Metrics / policy compliance
Communication Reporting and act
Embedded in the Wise reporting
technology Organization / Incentives / relationships and
Technology responsibility areas
Decision rights Accountability
Awareness of who
is responsible, why
Leadership Alignment Culture and accountability

At all levels of the Alignment across Gauging support,

company people, process and resistance and
technology having a plan to
influence

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The road to procurement policy is paved with good intentions
• Organizations have a propensity to develop procurement policies that stem from virtues of
compliance, standardization, and control

Procurement Policy

Compliance Standardization Control

• However: sourcing and procurement policies frequently fail upon implementation as they
lack the substantial bite to gain traction

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Procurement policy actions speak louder than words
• Procurement policies are intended to initiate and ultimately perpetuate behavioral change

• With the intent of invoking change, there are several simple considerations to put teeth in
procurement policies to mitigate the challenges of implementation and adoption:

Keep it Simple Timing is Everything First Impressions

Over-complication as a A challenge is an Supply management

byproduct of organization’s inability to should leverage the
thoroughness is a enforce its policies at the policy to leave a lasting
symptom of ineffective time of policy positive impression upon
policies implementation the business units

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1. Keep it Simple
Over-complication as a byproduct of thoroughness is a symptom
of ineffective policies
• Robust procurement policy should take every payment method and requisition into account
without crossing the fine line in becoming over-complicated and difficult to manage

Robust Policy Over-Complicated Policy

• All payment methods and
• Difficult to manage
requisition types are addressed
• Target audience does not
• End audience is taken into
include every employee
account
empowered to purchase goods
• Scalable with condensed
or services
versions representing regular
• Not scalable
situations

• To facilitate end-user adoption, a good approach to procurement policy development is to take the
audience into account - every employee of an organization who is empowered to purchase
goods or services on behalf of the company and every employee that uses those goods or
services is a procurement policy's target audience

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Modular and scalable policies are highly effective
• Developing easily malleable versions of a full policy document that addresses the question
“what’s in it for me?” for each audience group and increases the chances for success.

Normal
User Friendly Situations
Policy

Condensed Policy

Detailed Policy Complex

Situations

• With an average 12 minute attention span, the average policy reader would initially prefer a highly
condensed and targeted version of a policy over a deep dive into the fine print.

• Policy details cannot be overlooked - Employees should always have access to policy details
perchance they require further clarification or face more complex situations

• Condensed versions of policies should merely be a reference guide to the full text - The key is not
to over-simplify policy, rather, to have it be inviting and user-friendly.

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2. Timing is Everything
A challenge in procurement policy is an organization’s inability to
enforce its policies at the time it plans to release it
• At times, it is important to be comfortable with notion of employees simply knowing the rules first
and understanding the operating procedures later.

Policy Case Study (No PO, No Pay)

• In the concept of ‘No PO, No Pay’, a properly documented and
approved purchase order supported by a corresponding
requisition is required to be sent to vendors before a purchase
commitment is made

• Upon receiving an invoice from the vendor, accounts payable will

conduct a three-way match and triangulate the invoice to the
corresponding purchase order or no remittance is issued to the
vendor.

• The intent of such a policy is quite evident. It allows purchasing organizations to establish spend
controls, collect transactional level data/spend visibility against contracts, and meet compliance
requirements.

• However, in larger organizations, being able to enforce such a policy efficiently often
warrants the support of robust systems to enable the creation, approval and
administration of a purchase order.

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There are situations in which the intent for compliance usurps the
ability to govern
• Procurement policy should be implemented if the following requirements are met:

Requirements Recommendations
Prior • Many argue that there is no disadvantage to communicating the policy to ensure that the
Communication of rules are communicated and are clear prior to having the ability to track and govern them
Policy Rules
Ability to Enforce • If policies are launched without the ability to implement them, organizations run the risk of
Policies losing effectiveness
• The inability to enforce a policy prior to launching them sometimes perpetuates the
notion that policies are nothing more than mere intellectual constructs of an
organization that is incapable of governing
Consequences for • One of the main risks of prematurely launching procurement policies is that those who
Non-Compliance deviate from policy could develop a mentality of “No Compliance, No Consequence”
which could be far more difficult to reverse

• A key to procurement policy development is to properly assess where the limitations of function
intersects with the necessity for compliance and visibility - With a careful analysis of the pros and
cons of either approach, an organization can better understand the impact of the communications
timing in the effectiveness of policy.

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3. Timing is Everything
Supply management should take the initiative of leveraging the
policy to leave a lasting good impression upon the business units

Procurement Policy

Manage Costs Provide Spend Visibility Minimize Procurement Risks

Business Units

• In many organizations, procurement policies are often the first point of contact between supply
management and other business units

• Building a positive relationship with the business units is critical to the success of any supply
management organization. It is only through an open and collaborative approach that full
transparency between supply management and the business can be achieved.

• As a conduit to the business units, supply management’s policies should focus on the benefits for
the business

• Supply management can use the policy to communicate that it can help business units
manage their costs, provide visibility and insights into their spend, and minimize any
potential procurement risks

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Case Study
Procurement Policy Case Study: National Policy Adoption
(Strengthen the County Procurement Function)
Context:

A public sector organization was facing considerable challenges around the provision of social care services. It faced a
growing budget deficit projected to be £65m over the next four years and compounded by policies such as 0% inflation
increases to suppliers and assumptions that no temporary staff would be used to back fill unfilled posts. The client was
aware it was facing significant difficulties, but lacked the internal resources required to meet these challenges and to
continue to operate within its financial envelope.

Objectives:

The procurement work was designed to strengthen the procurement function and fund the change required for policy
adoption through quick wins savings initiatives. A Deloitte strategy team was initially contracted to allow the authority to
respond to all of the policy, budgetary, regulatory, and demographic challenges.

Result:

As part of this project, Deloitte designed a new strategy for the commissioning of care using the ideas of self-directed
support and individual budgets. Our robust approach to the development of the resource allocation system ensures that
sufficient contingencies have been built in to the allocation system to effectively manage the financial risks of delivering
such a major shift. Shifting to the new system will mean that the council has a far more transparent mechanism to manage
its finances. Our projections have identified a range of potential cost avoidance through this system which could be as high
as 30 pounds per year, at maturity.

Takeaways:

Through shifting its procurement and budgetary systems to the individual business unit level, the client was able to achieve
a 12% reduction in unit costs and was able to regain its status as a three star provider. In addition, the new system has
resulted in a far more transparent mechanism to manage its finances.

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Final Thoughts
Procurement policy development and implementation is equal
parts strategy and necessity
• Procurement policies can be interpreted in one of two ways - as an enabler or a constraint.
Effective policies will enable an organization to reduce costs, provide spend visibility and
minimize risks.

• As supply management organizations roll up their sleeves and delve into policy, it is important to
reflect on a few simple considerations to ensure that policies are rolled out to minimize resistance
and maximize uptake, including:
• Objectives of, and constraints on, the procurement policy
• Risks that might be encountered at each stage in the delivery of the policy
• Complexity levels of the policy necessary for compliance
• Key processes and activities that must be performed for implementation

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