Do We Really Need to Buy That? Controlling Spend Before a Requisition

June 11, 2018

I don’t know about you, but I have a budget.  Admittedly, it’s not the most fun thing in the world to do on a Saturday afternoon but there is something to be said for knowing when and more importantly HOW to spend my money – my budget gives me rules to follow and direction for my purchasing behavior before I actually open my wallet (or double-click the side button of my watch).

So why do we want to control spend before a requisition and how do we do that?

First the why

Any business needs the ability to adjust and manage their OpEx in a more selective manner – to optimize resources, to weather business cycles, to support initiatives and strategic direction.  It also allows for management of spend at total cost of ownership levels – for example, what happens if someone buys a model of laptop that an organization doesn’t support?

Now the how

We want to direct purchasing behavior to meet these goals across the entire procurement lifecycle, not just at the moment that someone has decided to “open their wallet.”  How do we provide the rules to follow and guide an organization in their purchasing behavior before we even get to the stage of actually buying?  There are a number of ways to achieve that goal.

Policy: Define a clear policy that governs spend behaviors.  Publish it, refer to it, update it regularly, define implications for out-of-policy behavior.  Think about things like: How much can I spend and under what circumstances?  When should I engage strategic sourcing?  When should I execute a spot buy? What are conflicts of interest and what codes of business conduct should I be following?  When are NDAs and supplier financial reviews required?  Outline your organization’s preferred supplier approaches and why they are important.  Set expectations around who will be approving your purchases.  Overall, design your processes to push people towards policies and policy-accepted behavior.

Define Clear Buying Channels: Talk about spend channels (when can I use a PCard?  When should I use a requisition?  Under what circumstances is it ok to not have a PO?).  Many organizations prefer to use PCards when spend is under certain dollar thresholds or of a certain type.  Equally as many organizations choose to not allow this type of spend except under extremely limited circumstances or under the supervision of your procurement/buyer teams.  Either way, your end users need to know when and how these rules apply by categories.

As another example, services procurement is a place where understanding the rules of engagement are important for end users.  Certain services may require direct input from procurement or sourcing before requisitioning – liability waivers, negotiations, milestone drivers are all important aspects of the services procurement cycle that need control and ownership.

Drive Spend through Preferred Suppliers: Actively source categories and establish your preferred supplier base.  Identify strategic vendors in your policy to drive spend to those vendors.  Contract with preferred suppliers and measure against those contracts.  Actively identify/tag preferred suppliers in your platform; this makes it easy for your end users to make the right choice that both meets your organization’s needs and the user’s needs.

Establish Catalogs with Preferred Suppliers and Items: Catalogs are one of the most efficient ways to control spending behavior and they provide easy paths for users to follow.  Maintain approved items and consistently update the items based on your organization’s needs and follow a concerted strategy to move as much spending to catalogs as possible.  Avoid catalogs becoming stale.  Catalogs and preferred supplier approaches provide the illusion of choice to your end users while still maintaining control and driving spend behavior such as purchasing approved laptops that are governed, maintained and supported by your internal IT organization.

Providing direction and the ‘how to spend’ to end users in a clear and managed way serves both purposes:  it controls spend behavior to meet organizational goals and it helps shape an end user’s decision-making.

That’s a win-win in anyone’s book.

Kelly Patterson, Principal