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Friday, April 18, 2014

How to Close Procurement’s Gap in IT Purchasing

It’s pretty easy to make fun of IT and procurement folks. Two holiday commercials are doing just that. In one, Microsoft attempts to sell some tablets via a procurement staffer depicted as a stuffed shirt that hasn’t “approved a stapler in three years.” In the other, Verizon hawks its tablet offerings via a shaggy-haired IT nerd who is more concerned with a beverage’s proximity to a keyboard than answering a co-worker’s query. Despite the critical roles each department plays in their organization, to quote Rodney Dangerfield, they get no respect.

Credit: Source One Management Services

Credit: Source One Management Services

Despite their similarities, however, there is a gap between them. In a white paper by Source One earlier this year, procurement departments were asked to rate the frequency of their interactions with other departments within their organization and how they felt they were perceived by those other departments. Just over 80 percent said their IT departments frequently used them, but only 60 percent felt that their IT departments consider them valuable. While this particular gap between IT and procurement is only 20 percent, it is indicative of a larger rift that exists between the two departments in many organizations worldwide.

These gaps develop for many reasons, but the big three are:

1. Priorities

IT and procurement have fundamentally different priorities. Procurement is tasked first and foremost to cut costs. Procurement’s other responsibilities — gaining a full understanding of purchases, finding savings opportunities, bringing spend under management, and managing suppliers and spend categories — are always done from the position of ultimately cutting costs.

IT’s first priority is uptime. Period. In terms of maintaining uptime, not only is savings not a priority, it may not even be on IT’s radar. The other responsibilities IT may carry — satisfying the organization’s technological needs, improving service and quality levels, adapting to technology trends, and operating under a budget — can fall by the wayside if uptime is threatened.

To summarize, procurement answers to the organization, IT answers to the machines.

2. Process

IT purchases are not typically suited for procurement’s long-trusted three-bid model. Purchasing decisions for IT — especially with software products — are often made by the department requesting the software, with procurement not being involved very often until the late stages, when it is asked to review a contract. IT may not even be involved with a purchase until close to the end, and that’s often just to confirm compatibility and bandwidth.

IT purchases are typically done in one of three ways. In the first, the department in need of a solution identifies its requirements, IT identifies solutions and solicits bids, and procurement is then asked to negotiate. In the second scenario, the department in need of a solution finds it on its own, asks IT to validate that it will work, and asks procurement to negotiate the buy. Finally, procurement may occasionally be asked to perform IT validation steps on top of its negotiation duties.

Bringing procurement and IT into the process late means there is little time for IT to validate the requirements, forcing it to rely on the stakeholders’ information and leaving little room for procurement to identify savings and negotiate. This time crunch can limit procurement’s ability to analyze the Statement of Work and may force IT to rely on the potentially advantageous SOW developed by the supplier.

3. Knowledge

Procurement is skilled in breaking down commodity categories and can source them extremely well. Finding best-value suppliers and negotiating favorable terms are everyday tasks for a modern procurement department. However, decompiling and understanding a 50-page, multiyear software agreement with multiple components, including implementation, training, licensing, and project management, requires a combination of technical knowledge, time, and resources that procurement may simply not have.

On the other side, IT knows the difference between physical and virtual processors like the back of its hand and can break down the terminology of the software agreement readily. But in understanding the terms of the contract — common wastage points, the areas of a contract that are negotiable, and which terms and clauses can be leveraged for additional savings — IT may lack the specific procurement knowledge to fully grasp the scope.

The end result of all of this is a gap between two departments but similar xxxxxx. Each of them has specialized knowledge as well as overarching goals that are critical to the organization’s success but is often given too little time to be effective. So how does an organization bridge this gap? How can IT and procurement work together better? We’ve seen success in mending the gaps between the departments — or at least remedying the effects of the gaps, with the following.

Implementing Additional Training & Policies

As seen in the three common IT purchasing scenarios, the effectiveness of both IT and procurement is often limited by a department overstepping its boundaries and either ignoring or not understanding their importance. Organization-wide training or policies that dictate procedures for working with IT and procurement can soften the negative impacts of IT purchases and potentially provide the framework needed for both IT and procurement to be effective.

Outsourcing to a Third-Party Procurement Service

Failing that, should IT and procurement continue to be brought into purchases late in the schedule and that their effectiveness is limited, consider bringing in an on-demand, third-party resource.

Source One is often brought into projects where procurement and IT are both rushed. While time remains an issue, adding a knowledgeable resource that speaks the languages of both IT and procurement departments — validating technical requirements and terms and conditions at the same time while using market data — allows in-house IT and procurement teams to maximize their effectiveness in these scenarios.

Establishing an Internal Shared Services Department

Setting up a cross-department shared services team is one efficient way an organization can mend the gap between IT and procurement while ensuring every department that needs to have a say in a proposed change has an input channel. By implementing a shared services department, an organization can bring IT and procurement into projects early in the process, work to further develop procurement’s technical experience, and develop methodologies to give both departments the chance to identify existing in-house capabilities and resources before reviewing new solutions.

For any organization or department experiencing a rift somewhere in its structure, the most important thing it can do is recognize the rift’s existence, identify what factors are contributing to it, and then stop furthering them.

 

Source One Management Services is a provider of procurement services, helping clients with strategic sourcing and spend management solutions. The company is based in Willow Grove, Pa. 

 

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