What Does Procurement Compliance Even Mean?
Generally speaking, compliance means doing what you’re supposed to do. So what does it mean when we talk about procurement compliance? Surprisingly, there is no one definition of compliance, or even one group of compliance issues, common across all procurement departments.
That’s not to say there aren’t commonalities. Procurement compliance often includes the percentage of spend procurement influences or the amount of spend on contract. Some organizations track how well they are doing when it comes to using designated suppliers, or how those suppliers are performing.
Less likely, you’ll hear about on-time payments, how often the accounts payable department used the lowest-cost payment method, or how well your sourcing professionals are keeping in line with agreed upon processes and guidelines.
Prioritizing Your Procurement Compliance Initiatives
Given the ambiguity, where should you focus? Start by realizing not all compliance issues are created equal, and not for the obvious reasons. Consider the difference between the percentage of spend on contract and how often you are paying on time. It isn’t hard to see that percentage of spend on contract has a larger, albeit less immediate, impact on your bottom line. For this reason alone it may be at the top of your list.
But there’s a bigger distinction behind the scenes, especially when it comes to enforcing whatever you define as compliance. Within the procurement department, you have control over whether your accounts payable department pays on time or if your sourcing team follows guidelines. In terms of the carrot and stick analogy, you can wield a pretty big stick.
The stick doesn’t work when it comes to buying on contract or using preferred suppliers, though. Why? They all depend on end-users (almost exclusively in other departments) executing within the framework you’ve put in place. And, as anyone who has attempted to work cross-departmentally can attest, that depends on your department’s ability to deliver some pretty irresistible carrots.
With Hard Work Comes Big Wins
It isn’t surprising that the big bottom line wins are tied to the more complex procurement compliance issues. The key is to realize – up front – that reaching your goal depends on your ability to put incredibly effective bumpers in place. And that’s actually easier than you think.