A German purchasing newsletter (einkaufs-manager – in German) recently had a few hot tips for preventing maverick buying in the company. Could be so simple – just propagate a new policy: No order leaves the company without sign-off from the purchasing department.
While this certainly is a very hands-on approach which in itself does stop maverick buying dead in its tracks, one question remains: Does a purchaser really need to see and sign off every order? We are talking about signing off orders on everything here – everything from material to furniture to pens to post-it notes. One could imagine a professional purchaser can use his or her time in more valuable and strategic ways for the company than by signing off an order for another pack of pens or paperclips.
Instead standardized products and even non-standardized services and products can and should be called-off by the requisitioner in a spend-centric purchasing system. Either from purchaser-approved (and negotiated) catalogues or via vendor forms from purchaser-approved vendors. The purchaser can use the saved time to do actual strategic work such as vendor development and frame contract negotiations. The operative work should be limited to handling the raw purchase requisitions (which are usually without vendor assignment).
The newsletter had another tip, which was a variant of what has become known as the “No PO – No Pay” doctrine: Simply tell all your vendors that any invoice based on an order which has not been signed off by a purchaser (see above) will be rejected. The tip closes with the rather up-beat remark that the vendor then can go and altercate with the requisitioner about the issue. While this, again, certainly kills maverick buying to a certain degree it may have some unwanted side-effects such as driving your vendors mad at you (as they usually have delivered already). It may even be a new vendor which had no knowledge about this policy in the first place. In addition the company loses valuable time since the requisitioner needs to send the ordered items back, haggle with the vendor and generally clean up the mess. It’s also open to debate if the purchaser actually wants the vendors to talk directly to individual requisitioners in the company. And last but not least it’s probably not what a good vendor-buyer relationship needs in times like these.
Instead the rule should be altered slightly so that every invoice needs to be based upon an order from the aforementioned spend-centric purchasing system (the PO would be easily identifiable by an order number). Since all the catalogues and vendors in the system are pre-approved by the purchaser and even the purchaser requisitions result in an order from the system the maverick buying is practically eliminated without the rather harsh side-effects mentioned above.
February 24, 2009 at 12:33 pm
I heard about a company using the principle: “3 strikes and you are out”.
First time you order without a PO a reminder from finance department is sent, informing about purchasing processes.
Second time without a PO our boss get a copy of the reminder.
Third time the “third strike and your out” message from CEO used.
I think it is an interessting approach // Fredrik
February 24, 2009 at 5:24 pm
I like that “three strikes” idea.
A customer of mine uses a slightly different approach: Since no payment is issued unless a corresponding order exists in the ERP (“No PO – No Pay”), the requisitioner enters a BANF retroactively to make the invoice valid. However, the system is set up to detect that the date of the BANF is younger than the date of the invoice and the BANF receives a warning note attached to it.
The purchaser who handles the BANF can see instantly that it was bought outside the system and the BANF does only get approved if the line manager of the requisitioner approves it also. This is quite similar to the second strike in the scenario you described.
February 25, 2009 at 11:26 am
Interesting discussion.
There are of course many valid approaches here, another example I came across some time ago, was that outside of system orders were paid for from the requisitioner’s ‘personal account’, and then deducted from his paycheck. While that most certainly should provide the wanted results it might also be a bit over the top for some.
From a change management perspective approaches that involves some sort of escalation/second/third chance procedure are probably the best bets in the long run. Another angle to consider is that if you ask a procurement service center person who the worst offenders are they answer: management at least 50% of the time from my experience