To finalise the procurement governance structure and strategy it is necessary to know exactly how procurement is currently being conducted and what opportunities for improvement exist. This will involve an information-gathering process that will inform future procurement decisions. It will also help you to decide what information will be needed for the procurement board to monitor procurement activity effectively.
Audit and review existing practices
Auditing and reviewing existing financial regulations and procedures and processes related to expenditure is critical. The procurement board needs to address the following questions:
- Are the college’s rules governing procurement expenditure ‘fit for purpose’?
- Do existing processes and procedures encourage and support good procurement practice, such as using consortia and procurement cards?
- Do the existing processes encourage procurement staff to monitor and review what is being bought, spotting trends and anomalies to identify opportunities and manage risks better?
Conduct a spend analysis
A spend analysis enables colleges to ascertain what they are buying, how much they are spending with suppliers and the number of transactions being processed.This delivers a number of benefits:
- It improves management information.
- It allows the identification of expenditure patterns as well as suppliers and prices for basic high-volume, low-cost items such as fuel, catering and stationery.
- It helps colleges prioritise procurement tasks to maximise opportunities for savings and efficiencies.
The spend analysis can be analysed in terms of ‘categories’ – a collection of related goods and services such as IT – and sub-categories which, in this case, would include laptops, scanners, consumables and printers.
A spend analysis helps identify the top suppliers together with areas of procurement that are weak, inefficient, costly and which do not conform to the agreed use of contracts.
A spend analysis involves looking at:
- The number and range of suppliers used.
- The number of transactions the college conducts.
- Spends for individual categories and sub-categories.
- Procurement methods.
Once the spend analysis is complete a plan for each category of spend can be developed before selecting the appropriate sourcing and procurement model, such as a framework agreement. Analysing expenditure by type,value and procurement method leads to a clearer understanding of how to reduce prices and transaction costs most effectively.This information can be refined and developed on an ongoing basis to obtain the best possible quality management information. A spend analysis becomes a useful tool for managing suppliers through reviewing their performance against data provided in-house or by consortia or external benchmarks.
If you do not feel you have the right expertise in-house, ask an external specialist to conduct the initial spend analysis for you. A number of companies offer this service, which involves taking data from a college finance system and re-presenting it in a format that allows it to be manipulated and analysed.
Review or establish a contracts register
A contracts register provides easy access to relevant contract information and can help you plan procurement activity by, for example, putting in place a new contract (if necessary) before the current one finishes. A contracts register includes the following information:
What the contract is for:
- Contract manager’s name.
- Supplier name.
- Start and finish dates of the contract.
- At what intervals the contract is to be reviewed.
- Value of the contract (sometimes known, sometimes an estimate).
Conduct a risk analysis
A key priority for every college is to ensure it is exposed to as little risk as possible. A clear view of the risks and any potential consequences that could arise from procurement malpractice is essential. Financial and legal risks will almost certainly be high if:
- Large numbers of untrained staff are authorised to make purchases and negotiate contracts.
- Procurement processes are not compliant with EU public procurement regulations.
- The college does not have an established process for dealing with contracts if, for example: procurement contracts are verbal; it does not operate an electronic purchasing order system; and supplier relationships are based on their terms and conditions rather than those of the college.
Step 2 Action points
- Audit and review existing procurement processes and procedures.
- Conduct a spend analysis, using an external specialist if necessary, and transform data into management information.
- Identify the key risks to which the college is exposed.
- Examine supplier relationships and ensure the college’s terms and conditions have been adopted.
- Explore any other procurement weaknesses.