Role of Procurement in Expense Management

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While many organizations, quite rightly, focus procurement activity on materials and services that feed the production line – a significant portion of many organizations spend remains in expense management (often called Travel and Entertainment). In many companies this remains an untapped opportunity for savings, increased leverage or improved processes.

Whilst historically expense management hasn’t been viewed as a procurement issue (instead viewed as a purely administrative issue associated with the finance function), considering the value of spend and the execution methods used (i.e. cash or credit cards) incorporating procurement techniques, policies and governance into expense management can offer benefit.

Handling expenses often involves labor intensive processes associated with masses of paper documents and convoluted approvals processes. Expense claims get checked approved and reimbursed invariably without looking at why the spend was taking place or with whom. Given often extensive utilization of corporate credit cards this can pose a significant challenge to spend management.

Expense management is often a 3 step process requiring
• Tools & Systems
• Processes & Policies
• Sourcing and Management

Tools & Systems

Re-engineering expense management placing more emphasis on procurement can radically transform how much is spent and appropriate controls. However in practice overhauling these processes requires tools and systems to simplify and automate much of it. A common approach is to incorporate P2P methods through utilizing Pcards and transactional management systems. With the Pcard acting as the spend tool – and the transaction Management system acting as the workflow system and data repository(single view of expense spend) this can offer great efficiencies reducing paper and time. The data obtained via Pcard solutions (from the payment bank) can educate and inform the Purchasing team, showing just where spend is being made – what supplier deals may be applicable and where maverick spend is taking place against agreed contracts.

Some of the benefits from a systemized approach include

• Better visibility
• Increased levels of compliance
• Systemised and mandoatory approvals processes

Processes & Policies

A common fault with many existing expenses systems is a “free-for-all” approach –where there is little in the way of rules regarding where spend can be directed and how. This is especially true for controlling generation of need and requirement.

Expenses can often be used to bypass a companies purchase order system and existing corporate policies with a key commodity (IT equipment for example). Within an existing paper based process this is often lost in the noise and is difficult (if not impossible) to track.

Through utilizing appropriate spend management systems – spend becomes visible and can be categorized utilizing supplier details. Policies can be established based on value / type of spend and routed via an appropriate workflow system.

Through increased attention tighter and more appropriate controls can be applied on spend. Often re-engineered expenses process can help eradicate bureaucracy – this is especially true of low value spend which requires complex and high levels of approvals through a paper based system.

Sourcing & Management

Often the missing link in expense systems is to understand what is being spent and why and then establishing appropriate deals for the commodity/product making these available to the corporate stakeholders.
Where paper based systems are used extensively and volume is high requirements can be difficult to extract but where the process can be systemized procurement professionals have better opportunity to interpret data and look for optimizing that spend through appropriate deals.

This can be key to leveraging spend and while there are the more obvious commodity categories that can be speedily implemented – e.g. fuel cards, hotel and travel arrangements closer inspection will undoubtedly reveal other spend areas that can be optimized.

Should You Have A Code Of Practice For Your Supply Chain Staff?

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Whilst most supply chain departments will have key transactional process and activity flows documented in some manner – one significant aspect of the purchasing function that is often overlooked is a code of practice. So do you need a code of practice for your supply chain staff? The short answer to this question is ‘Yes’ – whilst you may have activities documented the code of practice describes the policies and procedures for how individuals conduct themselves and manage key relationships as part of their day to day responsibilities.

A Code of Practice is not something that will radically transform the operation of the supply chain, but it will help people to be aware that they have responsibilities, wherever they are in the supply chain and the Code will help them to know what these responsibilities are. It also acts as a convenient way of introducing ethics and business standards into a document that will be read by everyone within the supply chain.
But what should be included in the code of practice? The Code of Practice should clearly guide staff as to the standards expected of everyone within the supply chain and include elements such as:

Relationships

The code of practice should explain how relationships with suppliers and other stakeholders will be managed and maintained in a fair and equitable way – for example only soliciting quotations when there is a requirement – having fair guidelines (for example evaluating suppliers), policies on anti-discrimination (between size of supplier, location etc), rules on dual sourcing.

Standards

The code of practice should also ensure that the personnel within the supply chain function operate to certain ethical standards. For example not accepting inappropriate gifts or hospitality and to what extent to maintain relationships with key personnel within the suppliers used.

Ethics & Professionalism

Most businesses expect high ethical and professional standards from their employees – this typically covers – fairness, objectivity, honesty. Staff can also be reminded that they need to be wholly open and honest throughout all aspects of the supply chain and they need to be open about any relationships that they may have, which could potentially have an impact or influence.

Legal aspects

The code of conduct should describe how the appropriate laws/governance apply to thier activities and how disputes should be managed and co-ordinated.

Care of process

Team members should be aware of how their tasks inter-relate with other parts of the business and – thus ensuring that key activities are carried out in a timely and effective manner. The Code of Practice should also remind people involved in the supply chain that they should provide information in a manner that is timely, accurate and ensures confidentiality.

Summary

The Code of conduct is an important document within the supply chain policies and procedures. It demonstrates that the supply chain function takes its responsibilities seriously.

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