Procurement leaders in the government sector have a large amount of responsibility on their shoulders. There is a subtle balancing act between obtaining the best possible goods and services at the lowest reasonable prices and ensuring their suppliers get a fair deal.
Simultaneously, there is the need to pay suppliers on time, balance budgets and ensure partners have access to the goods and services they need to do their daily work without delay. These multiple factors can often act in opposition, particularly when the extra burden of ensuring that government funds are spent wisely is added to the load.
Maverick spending has significant financial implications
According to the latest study from The Hackett Group, many organisations lose 10-20 per cent of targeted savings due to maverick buying. That is, when an employee makes a purchase outside of defined buying channels. This is a painful sum of money to be left on the table: assuming that the organisation is aware of the true cost of maverick spending. Unfortunately, a lack of visibility often prevents the public sector, and any organisation for that matter, from having an accurate view of the full extent of maverick spending, particularly when buying takes place across multiple systems.
An alternative possibility: 100 per cent spend visibility
Fortunately, spend visibility and advanced analytics are making it possible to highlight the true cost of procurement by ensuring all spend is 100 per cent visible. Advances in analytics and information management mean that the public sector can now work with information from the full spectrum of spend – from procurement, invoicing and even small item purchases.
Leveraging the advanced analytics and data technology allows government agencies to:
- Review non-PO (purchase order) activity to check for non-compliance
- Set targets for compliance and cost savings
- Aim towards organisation-wide contract management processes
- Improve supplier collaboration
- Provide actionable insights to drive business value
- Create more efficient places to work.
The result? Savings of 7-12 per cent
The benefits above are fairly substantial. However, they are not the most significant impact that true visibility can have on the public sector. Gaining 100 per cent spend visibility through combining spend and supplier data can save tax dollars – a lot of tax dollars. According to a report by PwC, “effective management of third party spend can on average release savings of between 7-12 per cent and can have a direct impact on the bottom line”.
From maverick spend to supplier engagement
A good way to illustrate this point is by sharing the true story of an organisation that went from disparate procurement systems to an automated procure-to-pay process.
DNA, an innovative Finnish telecommunications service provider originally struggled to report on spending internally. Come the end of the month, processing a mountain of invoices, including many recurring invoices, was a massive challenge. What made it worse was the separate nature of their finance and procurement systems which led to a significant amount of maverick spend.
DNA began solving these problems by harmonising their contract management. Then once contracts were in place, they introduced a procurement solution that employees and suppliers could easily use so they could order from a catalogue or ‘punchout shops’, giving them a wide variety of choice – all compliant with preferred purchasing recommendations.
Now, as new suppliers are introduced to DNA, it takes less than an hour to ensure their stock is available to purchase, a massive shift from life before their automated procure-to-pay system was in place.
The impact of an automated system on employees’ lives
This was life-changing for procurement employees: they were alerted to expiring contracts, and could completely eliminate one-off suppliers. As the number of e-invoices increased so, too, did the availability of purchasing data: a benefit for accounts payable, too, as the majority of invoices could now be automatically processed for payment. Kyösti Bergdahl, the company’s development manager noted additional benefits. He reported, “The benefit of automated order matching is that invoices don’t get stuck waiting for review and approval – and we can get them paid on time.”
Positive perceptions of procurement
Opportunities for cost control, cost savings and 100 per cent visibility are the bedrocks of a successful procurement team. By undergoing digital transformation and leveraging data and analytics more effectively their role can be completed transformed. As a result, perceptions of procurement can become highly positive, as users benefit from an easy-to-use experience and improved (yet compliant) choice. As an aside, we also see working relationships with finance colleagues improve for the benefit of all, as procurement visibility aligns with invoice visibility. The result is that government agencies have far greater control over all of their procure-to-pay processes.
And it all starts by having the right data available in the right systems.
Michael Pyliotis is Vice President APAC at Basware.
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