How do siloed organisations reduce the effectiveness of the procurement process?

procurement process
August 13th, 2019
Share :
{{totalComments}} comments

The effectiveness of the procurement process is too often hindered by an excessive silo mentality within companies. The existence of silos that limit access to or withhold information reduces overall performance throughout the procurement process.

This situation is not unique to the procurement process either. Companies are complex ecosystems and a segmented organisational structure has an adverse effect on various processes. This is because the effectiveness of each process depends on how easily information can be shared between the stakeholders involved in one way or another. 

However, the McKinsey firm has addressed the issue of optimising communication throughout an organisation's processes and has found that the existence of silos is a common occurrence.

In particular, the firm's consultants identified three barriers that hinder the effectiveness of the procurement process:

  • Barriers between people
  • Barriers between technologies
  • Barriers between data

These observations give rise to three questions:

Why should we bring stakeholders who contribute to the procurement process closer together?

Working in silos causes problems for any organisation.

If each department (procurement, finance, sales etc.) acts without paying adequate attention to what the other departments involved are doing, there is a significant risk that opportunities to make savings will be missed and/or that additional costs will be incurred.

For example, reducing both the number of product references and suppliers have been identified as important factors in making savings and reducing risk. These objectives can only be achieved if everyone involved gets together and has a shared understanding of the general interest.

The silo mentality is not linked to a sense of unwillingness among the various stakeholders. Instead, communication issues are caused by focusing on day-to-day requirements and the seniority of stakeholders who are experts in their field. 

How is the interoperability of digital solutions advantageous to the procurement process?

Stark differences in the solutions implemented by different departments is the second obstacle to an efficient procurement process.

The range of structures found in many companies is the result of three factors:

  • The pace at which each department chose to benefit from digital transformation tools.
  • Differing business priorities that steer preferences towards particular technologies.
  • Simpler access to digital resources which makes input from the Chief Information Officer (CIO) less essential when selecting solutions, reducing their ability to harmonise resources even further.

Having interoperable solutions is necessary to ensure the continuity of the procurement process, in particular enabling stakeholders to:

  • Talk to each other.
  • Share databases and repositories.
  • Feed into shared workflow platforms, such as approval workflows or providing assistance with decision-making.

There are multiple benefits to the interoperability of digital solutions introduced by stakeholders involved in the procurement process — and more obviously concerted practices.

For example, this includes the capacity to have full control over purchases. The end-to-end flow must of course be mapped out, but must also comply with classifications and trigger points.

In addition, stakeholders must all be able to access information about each supplier contract, in order to build a solid and objective evaluation of partners. 

What are the issues surrounding sharing data in the procurement process?

Combining methods to collect data and using the same format to share it are the ultimate challenges when optimising the entire procurement process.

Having clear and reliable cross-business indicators makes it possible to outline progress and set shared objectives.

In addition, sharing data on suppliers and logistics providers saves time and reduces the risk of errors that may resurface at a later stage.

Finally, pooling commercial data, sales forecasts or results from satisfaction surveys provides each department with the means to tailor its actions to both the current market situation and its customers. 

Procurement processes are even more efficient when managed collectively and when all stakeholders (buyers, financial departments and sales forecasters etc.) take a collaborative approach. Although this may seem like common sense, the barriers that exist between people, systems or data go against this principle. It's time to fire up your silos!

 

Find out more about the effectiveness of the procurement process in the article "Integration: The most powerful word in procurement".

Notre livre blanc
white paper
Bring your rogue buying under control