Why Transparency Is Critical in the Procurement Process
Author: Brett Knox
Updated: August 23, 2022 - MIN. READ
A procurement process without transparency is like mountain climbing in the dark.
You cannot see how high you are or what is above, below, and to your sides, and you do not know where there are loose boulders or snakes hiding in crevices. Plus, your team on the ground cannot track you, and the odds of a misstep are against you. The stakes are high.
If you try to run procurement processes without transparency, you cannot see what you are paying to whom or whether the price is right. You cannot see where you should be concentrating your efforts or whether dishonest employees and suppliers are stealing from you (until it is too late).
Significant losses may be brewing, but you do not see those either. Your finance team does not see what you are doing, and they cannot support you.
Procurement can be full of bad surprises in the dark, so you need to shed light on the full picture.
Since the transparency of the procurement process is vital to tracking costs, it is worth noting the latest available info.
In 2022, many businesses will continue to struggle in the new procurement landscape caused by the Covid-19 virus. Persistent labor shortages mean an increase in labor costs and less people to do the jobs that are required. These shortages mean virtually all industries have experienced growth in demand, further increasing the general supply chain issues businesses face.
Transparency's role in the procurement process
According to Procurement Magazine, business leaders face the following challenges:
- 50% of executives report that they do not have another supply source readily available.
- 42% of organizations expect they will experience higher prices and volatility across labor, materials, and overhead.
- Only 45% of organizations utilize data-driven spending strategies with available tech.
- 41% of executives believe that low adoption is a major barrier to digital procurement strategies
- 48% of executives have the visibility to understand the current inventory in their facilities. 46% understand the inventory in their supplier's facilities.
- 56% of all procurement tech uses third-party data to forecast shipping interruptions for tier-1 suppliers. This figure is only 37% for tier-2 suppliers.
With these problems in mind, it is clear to see why the clarity of procurement functions is necessary. Many of these difficulties boil down to a lack of info. Manual systems don’t capture vital information that can be used to curb spending and prevent supply chain issues.
Sometimes, businesses are without alternate suppliers for their materials. When the supply chain has issues, business owners can expect delays. This may directly cause workflow issues and expensive idle time, which should be avoided at all costs.
Because of the instability in the market, spending too much on materials can quickly get out of hand, with no way to predict rising prices. These changes in the market can also make future projects difficult to plan and forecast. It also means previous models are quickly made useless by sudden changes in pricing.
Many companies struggle with internal tracking, making it difficult to determine the true quantities of on-hand supplies, and this data is critical when making informed purchasing decisions. This goes even further, with some businesses being unaware of their primary supplier’s inventory levels. This can lead to crippling supply chain issues that could be avoided with proper data systems in place, specifically more digitized data-gathering systems
The dependence on manual data tracking limits procurement leaders' abilities to think and act strategically. Clearly, transparency is vital to provide necessary insights into procurement processes. With the right steps (covered below), you can maximize the benefits of transparency.
As you begin optimizing for transparency, keep technology and digitalization in mind. Manual processes are slow, labor intensive, and error prone, especially for smaller companies with limited procurement resources. You want to spend your time creating a competitive advantage, not fighting fires.
Leveraging technology enables transparency in a streamlined and compliant manner, allowing you to maximize success.
Now, explore more about why transparency in the procurement process matters and how to achieve it with technology.
Reasons why transparency is critical in the procurement process
1. It helps avoid duplication of orders and errors.
These cost you money and time. Jobs are late, pricing is incorrect (which leads to disputes), and you could lose bids. To combat this issue, provide checks and balances with a built-in supervisory review and approval of significant orders.
2. It eliminates the opportunity for illegal activity.
Without a line of sight into ordering activity, dishonest employees can place fraudulent orders and collude with suppliers in kickback schemes. Transparency makes this riskier for them through a formal, consistent approval process that sheds light on this activity. Be sure to keep records of orders in an accessible place.
3. Transparency makes auditing easier.
You need to conduct your own audits at least quarterly, preferably by someone outside of procurement. The IRS may want to audit as well. Again, you need to maintain clear, correct, complete records of transactions to stay compliant and make the process smoother.
4. Transparency identifies opportunities to reduce your costs.
You cannot go to market with bids if you do not know your spend. Suppliers know it! And, if you do not know how much you spend, you cannot know how much you save with bidding.
You may also discover leverage to do bulk purchasing. Plus, with accurate and complete information, you can track supplier pricing.
5. It builds credibility with your finance function.
If they can clearly see and validate your procurement-driven savings results, your finance team will work more effectively with you and support your efforts.
The need for transparency is real. How can you achieve it?
Manual processes will not maximize transparency. You will just be pouring time and money down the drain. Instead, you need to upgrade your procurement process with technology, and Raiven has the solution.
To digitize your procurement process from buying to supplier management, first sign up for Raiven.
Raiven is an easy-to-use, cloud-based, one-stop shopping platform for your buyers. The simplicity of use makes compliance easier, providing guardrails to steer your buyers away from nonapproved suppliers and back to approved ones. This reduces rogue purchasing.
It also provides a central place to keep records of your procurement activity for easy auditing. Less manual data input and less spreadsheet maintenance mean fewer errors!
Key benefits of Raiven:
- Pre-negotiated discounts of 7-25%+ from industry leading suppliers like Carrier, Ferguson, Grainger, Graybar, Koch Filter, and more.
- Supply chain alerts for price and product availability changes on the supplies that matter to you most.
- Private marketplace houses all your preferred suppliers in one location for easy access to your discounts. No more bouncing around websites comparing prices.
- AI-powered purchasing tools that find the lowest prices even when employees shop outside your preferred suppliers.
What is more, you will have readily accessible spend data at your fingertips in real time. You can use that data to provide accurate analyses and reports on the savings results you achieved.
With fact-based reporting, you can establish credibility with your finance function. They can see your source data and validate your reports through Raiven. In the end, communication will be clearer, collaboration will improve, and your finance team will support your program.
The lack of transparency in your procurement and subcontractor process poses real financial and legal risks to your HVAC company. Raiven has the tools to shed light on the situation and establish a foundation for future procurement management excellence.
For more information, contact us today!