Red Tape in Procurement – Painting by Numbers
Earlier in the year my daughter drove over the kerb with her little red car. The kerb won the contest and she ended up with a flat tyre and a bent rim. The spare wheel went on and we took the damaged tyre to get fixed. She was fortunate that the tyre place could fix the steel casing and the charge was only $20. Naturally my daughter was relieved and was happy that is was JUST $20 to fix the issue. It did remind me of red tape and the effect of it on procurement.
BUT WAS IT REALLY JUST $20?
Not when we start adding up the time it took to sort out the issue.
Someone had to remove the tyre and replace it with the spare tyre. Then we took it to be fixed. Thereafter removed the spare and replaced it with the fixed tyre. And somewhere in all of this, the tyre pressure had to be checked as well.
Just in minimum labour rates, the time value of the transaction would have been at least five times more than the $20 spent to pay for the problem.The number of touch points/ transactions/ actions to get to fixing the issue, were at least six or more.
WHO PAYS THE PRICE OF RED TAPE?
Because of the smudged track record of many ex-CEOs, compliance gets an extra mention at the round table of local government. Everyone gets a little bit more scared because, really – should someone not have picked up the error of their ways?
Should we now trust less, given that our trust has been abused?
As a result, we end up adding more layers to our compliance. Often those layers filter down to small value but high volume transactions. The touch points of those small value, high volume transactions increase.
Compliance is non-negotiable.
Red tape – well that is just a waste of time.
Fact Check: Those who want to bypass the system, know the system really well. They will make the system work for them.
- where to get or even create the right number of quotes required,
- how to set the value of the purchase order where it blends in with what else is happening,
- how to space out the payments,
- where to get their kick-back from or
- how to move those who will ask the right questions from the equation.
They think they are smarter than the rest of us. Until one day when their luck runs out.
Unfortunately, then everyone else pay the price of not only the existing red tape but the added red tape given that trust has yet again been abused.
RED TAPE DOES NOT CONNECT THE DOTS
I am currently working on a client project whereby we are looking at ways to improve the access of regional and other small business to local government supply chains. It is a collaborative project with seven regional local governments.
Finding a way to remove barriers from both the local government and small business perspective is certainly an interesting challenge with lots of constraints for both local government and small business, both paying the price of red tape under the guise of compliance.
How do we come up with ways to make it more user friendly, sustainable and equitable for all? How do we find ways to ease the burden for both local government and small business and remain compliant?
By standing back and connecting the dots
By finding ways to bring consistency in requirements, removing the complexity and most of all trying to eradicate red tape.
In this instance, the dots connect when one analyses:
- the variety of approaches in current policies, processes and procedures in place;
- time value of the local governments spend their money – transactions paint the big picture of spending versus effort;
- what is expected from suppliers within the various procurement thresholds.
PAINTING BY NUMBERS
To connect dots, one has to look at the data and the picture it paints. Pardon my pun, but red tape is painting by numbers.
There is more to procurement than the single minded focus on bringing in more compliance controls instead of looking to work out the trends of those who, not abusing trust as such but misusing their powers to make the system work for them.
Coming back to my daughter meeting the kerb – remember how a low value transaction of $20 ended up costing at least five times more in time value and had a significant number of touch points?
With red tape the numbers paint a picture where a lot of attention and time get spend on low value transactions, when focusing on only payments and the art of buying and not looking at the time value impact of red tape. Adding more red tape has not removed the prevalence of fraud and corruption in local government, yet it is one of the most stringently managed government set ups.
Red tape does not keep the wheels turning, in fact – it slows it down.
WHERE TO START TO REMOVE RED TAPE?
It actually takes guts to stand back and let people take accountability for the things they are responsible for instead of increasing the number of touch points and making it more difficult for those who are trying to get their job done.
We really need to keep asking why there is, for example in local government, fraud, abuse and corruption is so prevalent.
Corruption happens under people’s noses and we miss it when we only look at the number we are currently painting.
To remove red tape, we really need to pull off the band aids and critically look at the controls, the systems and the data. The end picture.
Remove the opportunity for blindfolding
If we bring in yet more controls without critically looking at why the system failed, we are putting a blindfold over the problem.
We really need to see the full picture and trend the spend to measure the effectiveness of the controls and find the anomalies.
We have to create systems and controls that allows us to just that. Bring in consistency in roles, responsibilities, controls, contract management, measuring and monitoring. Remove the opportunity for someone to hide in the volumes of transactions and use the system to their benefit.
Remove the fragmentation
I was shocked to learn that some councils still use paper-based purchase order systems. To transfer the information into an electronic format adds more touch points, more blindfolding and less opportunity to trend data and review the effectiveness of the controls.
Not the way to go. Fragmentation does not improve control, it breaks down the chain of responsibility.
To see the complete picture, you need all the data – not just tiny bits
Some councils focus on monthly payments, but if you only look at payments on a monthly basis and not purchase orders placed and spend history and patterns, you will not pick up what is right under your nose.
All you see, is the numbers that have been painted, not what the picture is going to be or how much paint has already been committed or spilled.
Less is More
Because of the abuse of power and corruption in different local governments, the procurement thresholds have been used to band aid the issue by increasing the controls on low value, high volume spend.
We manage to turn the 80/20 principle on its head.
The lowest value transactions make up around 80% of the transactions for less than 20% of the spend.
This does not deliver more for less but delivers less with more effort.
Yet again it focuses on the number being painted, not the picture and it clouds the trend. If we cannot pick the pattern, we will not find the anomalies and greed will continue to prevail and not be picked up.
PAYING THE PRICE OF RED TAPE
Every time we add more complexity, we create more touch points and suddenly a small value transaction is now demanding even more attention.
We reduce accountability and bring in more distraction, instead of looking at the data critically and finding the trends. And then pick up those who are using the guise of compliance to make the system work for them.
Red tape it takes away the focus from the real risks in business, such as contractors working unsupervised on high risk projects as the works manager is trying to get three quotes for a $5000 transaction.
Paying only $20 for fixing the tyre was not the time value of the transaction. Nor is adding more complexity at low value, high volume transactions.
If we focus on the price and add more red tape, we will forever be painting by numbers. It is a slow and inefficient process and it allows for corruption to hide.
WANT TO KNOW MORE?
Red tape creates a lane way for those who know how to manage the system to their own personal benefit. One can pick it up by bringing in the right controls at the right level, holding people accountable and monitoring the effectiveness of the controls. Look at the big picture to see where the colour is off. Pick the anomaly. We can assist as we know how to pick the patterns, find the trend.
Contact us if you want to work out whether your procurement systems are set up to paint by numbers and want to eliminate red tape in your organisation.