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Policies with Teeth Institute for Supply Chain Management June 7, 2012.

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Presentation on theme: "Policies with Teeth Institute for Supply Chain Management June 7, 2012."— Presentation transcript:

1 Policies with Teeth Institute for Supply Chain Management June 7, 2012

2 Presenters Daniel Abichandani is a Sourcing and Procurement Specialist in the Toronto consulting practice Deep understanding of sourcing and procurement strategy and implementation and has public sector experience with the Ministry of Government Services and Canada Post. Daniel Abichandani Manager, Deloitte Consulting Chris Johnson is a Senior Consultant in Deloittes Supply Chain Practice in Toronto Experience in cost reduction, planning software, process improvement, and spend analysis for various clients through his role with Deloitte. Chris Johnson Senior Consultant, Deloitte Consulting

3 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

4 - 3 - Key Policy Elements LeadershipCulture Escalation / Repercussions Metrics / Reporting Policy Foundation Enablers Tactical Execution Communication BU/User Friendly Alignment Process Gauging support, resistance and having a plan to influence Alignment across people, process and technology At all levels of the company Organization / Decision rights Technology Incentives / Accountability Embedded in the technology Wise reporting relationships and responsibility areas Awareness of who is responsible, why and accountability A means to enforce policy compliance Embedded in the process Make it easy for BUs and users to adopt to change Transparency in reasons for change, requirements and benefits Timely and accurate information to gauge policy compliance and act Clear, concise and communicated Procedure

5 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 However: sourcing and procurement policies frequently fail upon implementation as they lack the substantial bite to gain traction Compliance Standardization Control Procurement Policy

6 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: Over-complication as a byproduct of thoroughness is a symptom of ineffective policies A challenge is an organizations inability to enforce its policies at the time of policy implementation Supply management should leverage the policy to leave a lasting positive impression upon the business units Keep it SimpleTiming is EverythingFirst Impressions

7 1. Keep it Simple

8 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 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 Over-complication as a byproduct of thoroughness is a symptom of ineffective policies Robust PolicyOver-Complicated Policy All payment methods and requisition types are addressed End audience is taken into account Scalable with condensed versions representing regular situations Difficult to manage Target audience does not include every employee empowered to purchase goods or services Not scalable

9 Developing easily malleable versions of a full policy document that addresses the question whats in it for me? for each audience group and increases the chances for success. 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. Modular and scalable policies are highly effective Detailed Policy Condensed Policy User Friendly Policy Complex Situations Normal Situations

10 2. Timing is Everything

11 A challenge in procurement policy is an organizations 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. 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. Take a typical procurement policy that requires a written or electronic purchase order to purchase any of the goods or services designated as requiring one prior to remittance. 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. So it begs the question, if a proper system is not yet in place to support such a policy, would it be premature to ask all of its employees to follow a rule when there is no mechanism to track compliance? The answer is it depends. There are situations in which the intent for compliance usurps the ability to govern. Many argue that there is no disadvantage to communicating the policy to ensure that the rules are communicated and clear prior to having the ability to track and govern them. On the other hand, if policies are launched without the ability to implement them, organizations run the risk of 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 that an organization is incapable of governing. One of the main risks of prematurely launching procurement policies is that those who 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 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.

12 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: 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 RequirementsRecommendations Prior Communication of Policy Rules Many argue that there is no disadvantage to communicating the policy to ensure that the rules are communicated and are clear prior to having the ability to track and govern them Ability to Enforce Policies If policies are launched without the ability to implement them, organizations run the risk of 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 Non-Compliance One of the main risks of prematurely launching procurement policies is that those who deviate from policy could develop a mentality of No Compliance, No Consequence which could be far more difficult to reverse

13 3. Timing is Everything

14 Supply management should take the initiative of leveraging the policy to leave a lasting good impression upon the 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 managements 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 Manage CostsProvide Spend VisibilityMinimize Procurement Risks Business Units Procurement Policy

15 Case Study

16 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

17 Final Thoughts

18 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

19 Deloitte, one of Canadas leading professional services firms, provides audit, tax, consulting, and financial advisory services through more than 7,600 people in 56 offices. Deloitte operates in Québec as Samson Bélair/Deloitte & Touche s.e.n.c.r.l. The firm is dedicated to helping its clients and its people excel. Deloitte is the Canadian member firm of Deloitte Touche Tohmatsu. Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms, and their respective subsidiaries and affiliates. As a Swiss Verein (association), neither Deloitte Touche Tohmatsu nor any of its member firms have any liability for each other's acts or omissions. Each of the member firms is a separate and independent legal entity operating under the names Deloitte, Deloitte & Touche, Deloitte Touche Tohmatsu, or other related names. Services are provided by the member firms or their subsidiaries or affiliates and not by the Deloitte Touche Tohmatsu Verein. © Deloitte & Touche LLP and affiliated entities.


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