The Treasury. Review of Controls over Purchasing in Central Government - Chapter 6

Transcription

1 The Treasury Review of Controls over Purchasing in Central Government - Chapter 6 KPMG March 1998

2 6 Best Practice Opportunities 6.1 Introduction In terms of the specific focus of this review on controls over purchasing, the results indicate that the key opportunity for improvement exists with the documentation of policies and procedures. These are discussed in section 4. KPMG has outlined below a number of internationally recognised trends in procurement which are considered to represent current good practice. While outside the specific focus of this review, the comments are included by way of interest for departments reviewing or considering changes to their purchasing activity Procurement Strategy Development Trends Organisations are developing optimum procurement strategies. Best practice procurement strategies: adopt different purchasing approaches for different goods and service; H consider the full gamut of delivery mechanisms, such as outsourcing, single sourcing; develop key performance indicators for each type of good/service e.g. price, performance, delivery; and m consider the best organisational structure to support the process. For example, many multi-location organisations are establishing centralised service locations for accounts payable and procurement Isscces for Departments to Consider review the procurement strategy to ensure that it provides direction to employees in the way in which an effective and efficient procurement environment is to be achieved. 6.3 Supplier Relationships Trends Increasingly, companies world-wide are reviewing their relationship with suppliers to ensure that they are efficiently and effectively managed. Good practice is to: build long term partnerships with a limited number of key suppliers and to actively manage the relationship to the mutual benefit of both parties; 37

3 perform up-front evaluations of suppliers prior to selection to qualify them. Certification, rating and training eliminates poor suppliers and assures a higher quality, smaller supplier base; define the supplier relationship types (e.g. from arms length to strategic partnership) for each type of good or service; m develop incentive and rewards systems to motivate suppliers; and H continuously assess supplier performance Issues for Departments to Consider I Vendor Lists Many departments tended to have thousands of suppliers on their vendor lists. Reduce the number of suppliers and more actively manage them to enhance the quality of goods and service to reduce total cost and to improve timeliness. This should be undertaken in the context of the need to balance public sector contestability requirements, Supplycorp Contracts Some departments subscribe to Supplycorp (formerly GSB) where membership allows them to take advantage of bulk purchasing power etc. However, despite payment of an entry fee and annual subscription, use of Supplycorp was often not mandatory throughout the subscribing departments. The potential benefits of this central purchasing function may be being lost Telecom Review the cost/benefit of utilising Supplycorp and the compliance mechanisms developed to ensure adherence to these preferential contracts once adopted. A significant number of departments noted their dissatisfaction with Telecom s billing system, with multiple billing creating significant coding and reconciliation work. Adopt the appropriate supplier management strategy to resolve this issue 6.4 Procurement Activity Effectiveness and Efficiency Tren cls Efficiency and effectiveness gains can be achieved in procurement activity by for example: having a clear understanding of the volume, value and nature of goods and services to be purchased and adopting appropriate procurement strategies; m viewing procurement and accounts payable as one process requiring standard policies and procedures for all sites; 28

4 creating procurement service centres with skilled buyers focusing on particular types of goods or services; streamlining processes to adopt an Evaluated Receipt Settlement (self billing) model which matches purchase orders and receipt with no invoice processing; establishing Accounts Payable service centres, consolidating invoice processing, and thus reducing per invoice transaction costs; utilising procurement cards and assumed receipts (re:duce matching and audit a percentage of transactions) to significantly reduce the cost. of processing minor, low risk purchases; and requesting suppliers combine invoices for recurring items and using blanket purchase orders for recurring purchases Issues for Departments to Consider Procurement ccrrds The use of procurement cards is an increasing trend overseas and in New Zealand. Procurement cards, used with proper controls, provide a secure and flexible means of purchasing that has the potential for efficiency and economy. Their use means suppliers get paid quickly, there is a reduction in paperwork, and a speedy purchase process. The use of procurement cards has greater relevance for manufacturing/retail organisations. However, within the New Zealand Public Service, extensive use appears to be made of Fleet Cards and some departments use travel cards, credit cards and taxi cards for purchasing. Review the potential efficiencies in transaction processing to be gained from the use of procurement cards or one multi purpose procurement card Centrcd Purchasing Payment Review the cost/benefit of centralising Accounts Payable and the supporting purchasing policy function Sdf Bdling Review opportunities to automate purchasing systems and reduce invoice handling and processing costs by matching purchase order and receipt and generating self billed invoice for tax purposes StqffC1~~im.s Review policies to reflect a philosophy of not placing the individual employee in a position of having to purchase first and then seek recompense. Consider processing payments automatically for low $ purchases with a sample audit process used as a control. 29

5 Benchmarkrng Benchmarking is used increasingly by organisations to identify opportunities for performance improvement and drive efficiency programmes. There is little inter departmental benchmarking at present. Consider benchmarking as part of any wider efficiency reviews Organisation Structure and Human Resource Issues Trends Given that purchasing accounts for significant expenditure m many organisations, procurement professionals are increasingly being employed in a strategic position. These professionals possess the necessary skills to operate in a co-ordinating and cross functional role and to be responsible for managing the relationship with suppliers Issues for Departments to Consider m B Who is responsible for procurement within the Department and is that at a senior enough level? Does the organisation have the appropriately skilled/competent individuals in the procurement role at present? Performance Trends Measurement Best in class organisations: manage the relationship with suppliers with the aid of a simple set of measures which facilitates optimal utilisation of suppliers as well as providing the data to feedback as part of the continuous improvement programme; and m have an information and cost accounting system that is capable of collecting operational and cost data to calculate performance measures Issues for Departments to Consider Review the supplier performance system that is in place to ensure that it supports the evaluation and management of suppliers with whom the Department does business. m Use performance measures as a starting point for improvement as part of any supplier management programme. 30

6 -.1-T- KPMG 6.7 Technology Enablement 67.1 Trends Best in class procurement organisations have developed IT strategies that are flexible and encompass support for the procurement process by facilitatimg ea.se of use for users and improving cycle times. Examples include: the use of electronic data interchange (EDI) for electronica.lly communicating purchase orders, acknowledgements, invoices and forecasts. Faxing is an alternative for small suppliers, with no EDI link; the development and maintenance of common corporate purchase agreement databases and the use of online catalogues (and purchasing); and the use of imaging and enclosure information transfer, bar coding of incoming material and automated routing and approval of purchase orders through workflow Issues for Depnrtments to Consider w Review the benefits of electronic commerce to establish communication links with suppliers and to improve timeliness and accuracy of data transfer. Develop and maintain a common vendor database. 31