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Decentralize out of control purchasing to now controlled centralized purchasing

"Bellwether has eliminated the paper in purchasing and allowed us go from decentralized out of control purchasing to centralized purchasing and invoice processing. This has reduced cost and provided us a clear picture of accruals."

Ben Belflower, Reporting & Analysis Manager, Aramark

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Transparent Procurement… the Cons

A transparent procurement system is all about the process by which the
departmental agencies purchase services and goods openly for others to see. However, the process of a transparent procurement system will be subject to specific policies and rules policies covering how the relevant decisions are made. Though there are many advantages as we discussed last week in the “Transparent Procurement…Pros” blog post, there are some potential drawbacks as well.

May Not Favor Local Business: 

In a transparent procurement system you feel like price is the most important aspect because of the visibility of your purchases. So in trying to find the best deal you may bypass local businesses to save a few cents per item ordered. It tends to put the emphasis on paper results and doesn’t factor in all the intangibles of supporting local small businesses in your community.

Delay: 

One of the advantages of a transparent procurement system involve grouping orders across all departments of a business into a single, larger quantity order that can yield better pricing. Part of the process may involve waiting on other departments to add to the order and meet the required minimums for reordering. The delay may give you a better cost basis, but that may be offset by shortages and lost productivity waiting on the materials your department needs.

Perishable quantities:

Grouping orders becomes possible and welcome with transparent procurement, but is not always the best solution. Consider perishable goods and multiple locations. Combining into a single order delivered to a central location may work well with office supplies like paper, tape, pens and pencils, but perishable goods may suffer from this treatment. The extra handling by employees who may not be qualified and trained and the extra time involved to redistribute may lead to damaged or spoiled goods.

Sacrifice Quality and Reliability:

There is a risk of suppliers who may provide low-quality products in an effort to keep the costs down. You get what you pay for so there is a risk that trying to keep costs down due to the transparency factor may result in trade offs in other areas beyond low-quality products such as unreliable fulfillment, missed delivery deadlines, or cancelled orders. Paying a little extra may be necessary to maintain higher standards and best practices.

Too Many Chiefs:

Transparency may lead to the over involvement of those monitoring the purchasing processes. Without understanding the intricacies of your job, other department heads, managers, or stakeholders may decide they know better than you do and try to tell you what to do. However, they may be unfamiliar with this procurement method and your job is to ensure that other project success factors are not compromised.

BELLWETHER PURCHASING SOFTWARE can help prevent these pitfalls. Contact us today for a LIVE DEMO, or sign up for a FREE 30 DAY TRIAL and see what our software can do for your company.

May 8, 2014
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BY Bellwether
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