Learning from Others' Procurement Mistakes
Mistakes are a part of life – this is a fact in business and personal situations. When it comes to procurement departments, the same is true. Procurement is a complicated process that necessitates proper planning and procedures. When a mistake occurs, it can be an opportunity to learn how to do things better next time. In order to proactively prevent future mistakes in your organization, it can be helpful to learn and grow from others’ mistakes.
There are minor to extreme procurement blunders that businesses could experience—many of these stories are out there for you to study and take heed of. When a potential issue can be identified beforehand, your company can strengthen its tools and practices and conduct better business as a result. Below are three examples of such issues:
Procurement Mishap #1: Human Error
In May 2019, Kraft Heinz Co. announced that it will need to restate financial reports for a nearly three-year period (2016, 2017 and most of 2018) to fix errors that resulted from faulty procurement practices conducted by some of its employees. In other words, the company is having to spend additional time and resources to resolve misstatements caused by human error.
However, the company has released statements that suggest they have learned from this fumble and are working hard to rectify it. Specifically, Michael Mullen, a Kraft Heinz spokesman, said “The company is taking action to improve our policies and procedures and will continue to strengthen our internal financial controls.”
Human error can be difficult to avoid in many business scenarios. Procurement contracts, for example, are especially complex. While a minor error such as a spelling typo in a procurement contract can be embarrassing, far worse mistakes, such as an incorrect figure, can cost a business money, time, resources and even future opportunities. When producing a procurement contract, all possible risks and loopholes must be considered; this in itself is a time-consuming process.
Thankfully, mistakes caused by human error can be greatly mitigated by today’s modern technology. Procurement contracts and other complex documents are usually dense and lengthy in nature. For this reason, it can be extremely helpful to have a system in place that detects errors and alerts the team who can rectify them. Thus, if your business hasn’t already, it may want to consider implementing a fail-safe system that includes tools such as procurement software and automation. It may be an investment up front, but it’s one that will prove worth it over time.
Procurement Mishap #2: Supplier Vetting
In 2017, the Government Publishing Office (GPO) awarded a contract for the 2020 census to Cenveo, a company that manufactures various print-related products. However, after months of unraveling an inauspicious contracting process, the GPO announced a new printer earlier this year. The Justice Department cancelled the original contract with Cenveo after the company filed for Chapter 11 bankruptcy in February 2018.
After the contract was cancelled, the GPO inspector general’s office investigated the contracting process and came to the conclusion that they should have vetted the supplier more extensively. Basically, the GPO awarded its 2020 census contract to a company that was not in a position to follow through on its prior agreements. The GPO then had to spend additional time to find a new supplier.
Switching costs are no doubt a big concern for many procurement departments. In order to avoid switching costs, it’s crucial to take the necessary time vetting each and every bidder. There are many parts to consider before committing to a particular supplier, and each company’s supplier needs are different. Identifying those needs and selecting a supplier that can deliver desired results are vital to the health of any business.
Procurement Mishap #3: Rushing into New Projects and Procedures
In May 2016, the Department of Homeland Security (DHS) launched FLASH, a project that was designed to radically change and improve the process of procuring software development services. FLASH aimed to do this by having companies design and build working software instead of submitting lengthy proposals.
But things didn’t go quite as planned. The process seemed simple at first: make every bidder come into the DHS office and work together with a government employee to design and build a simple project. The DHS would then evaluate each company’s practices in order to determine who was the best fit. However, while there were definite pros to this method, the DHS ran into many logistical issues that weren’t initially considered. For example, not only were they not prepared for the number of bidders they attracted and were expected to invite into their facilities, several of the losing companies filed protests alleging that they deserved spots on the slate of FLASH winners.
The lesson here is to avoid rushing into new supplier relationships, contracts and processes. While it’s commendable to be innovative, that innovation must be backed up with thorough planning and risk assessments.
While each of these three scenarios dealt with different issues, there’s a similarity across all of them. They show that procurement is a multipart process that requires thoughtful preparation and forecasting abilities. Mistakes will likely happen; no company or business, no matter how established or successful, is immune. However, these examples serve as cautionary tales that will help you avoid the costly mistakes. As with many things in business, in order to succeed, a healthy balance of risk taking and caution in procurement is necessary.
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By: Mara Michael
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