What is Governance?
According to Investopedia, corporate governance is defined as “the system of rules, practices, and processes by which a firm is directed and controlled”. This encompasses principles such as fairness, transparency, risk management, responsibility, and accountability.
In the context of Procurement, this means establishing systems and procedures for your procurement processes to that are documented, transparent, controlled, and accountable. Having a high governance system in place ensures that goods and services that are sourced not only meet the organization’s goals, but are also compliant with legal, ethical, and commercial requirements.
Why Should You Care About Procurement Governance?
As one of the main gatekeepers of a company’s expenses and operations, the Procurement function plays a key role in ensuring high governance in a company’s conduct. This is especially so with the increasing global trends pushing for Environmental, Social and Governance compliance (ESG).
High governance procurement is a vital core of a company’s ESG strategy to ensure a company is free from exploitation and corruption. It also:
- establishes transparent rules, controls, and guidance
- builds trust with investors, the community, and public officials.
- promotes long-term financial visibility, opportunity, and returns.
- lessen the potential for financial loss, waste, risks, and corruption.
- promotes resilience and long-term success.
By preparing your procurement processes to be high governance, you will be future-proofing your company against the near- and long-term ESG risks.
How to Build High Governance Procurement
According to the Organization for Economic Co-operation and Development (OECD), there are 4 key pillars for enhancing integrity in procurement. While they were primarily targeted at public procurement, private organizations can also use this as a framework to build their procurement governance strategy.
Pillar 1: Transparency
- Provide an adequate degree of transparency and auditability in the entire procurement cycle to promote fair and equitable treatment for potential suppliers.
- Maximize transparency in competitive tendering and take precautionary measures to enhance integrity. In particular, minimize exceptions to competitive tendering such as direct negotiations.
Pillar 2: Good management
- Ensure that company funds are used in procurement according to the purposes intended.
- Ensure that procurement officers meet high professional standards of knowledge, skills, and integrity
Pillar 3: Prevention of misconduct, compliance, and monitoring
- Put mechanisms in place to prevent risks to integrity in procurement.
- Encourage close co-operation with vendors to maintain high standards of integrity, particularly in contract management.
- Provide specific mechanisms to monitor procurement as well as detect misconduct and apply sanctions accordingly.
Pillar 4: Accountability and control
- Establish a clear chain of responsibility together with effective control mechanisms.
- Handle complaints from potential suppliers in a fair and timely manner.
How to Leverage Technology for Procurement Governance
The implementation of a complex, transparent and auditable procurement system can be a monumental undertaking. Moreso if a company is still using manual procurement processes.
Instead, by leveraging eProcurement solutions that are built with governance structures in place, companies can reduce the time and effort needed to transform their procurement processes.
As global market trends increasingly push for high governance, procurement leaders need to future-proof their company by ensuring that their processes are transparent, controlled, and accountable.
By partnering with the right eProcurement solution, companies gain a digital facilitator that can quickly set up a governance framework that will improve and streamline compliance simply by using the technology.