How long does a procurement take?
Lead time in procurement
A common issue for procurement teams is to manage the expectations of the rest of the business. This includes communicating just how long it takes to procure goods and services. We provide the following benchmarks in the hope that this allows procurement teams to point to the fact that right across organisations in Australia, the typical procurement projects take a fair bit of time.
Why procurements take several months, becomes clearer when we break up the process into components.
First, the team needs to work with their stakeholders to identify the ‘need’, articulating what is being bought and why. While this seems straight forward it often isn’t and a misunderstanding of the critical success factors commonly derails procurement projects later on or leads to poor supplier performance.
Next, the team articulates that need to the market often using procurement documentation, such as tender documents. This often includes defining service levels, specifications, contract governance and contractual terms and conditions. Frequently the market is given data which often needs to be collated from across multiple systems.
Further thought will to go into what suppliers to approach and how their responses should be structured. Suppliers frequently need several weeks to put their proposals or quotes together, which then need to be reviewed and scored by the client. Further negotiations may be required before a contract can be signed.
Just how long this whole process takes depends on the complexity of what is being procured. Our clients often deal with complex services rather than the purchasing of commodities. So that we can draw general insights, we asked 56 organisations to look at three different types of projects they undertake to procure goods and services:
> Simple projects, characterized by a low risk and below $250,000 total contract value typically take 2 months to complete, whereas better practice organisations achieve this in 1 month.
> Medium projects (low or medium risk and below $1M total contract value), take twice as long, which is typically up to 4 months. Lagging procurement functions take up to 6 months to complete such sourcing activities.
> Complex projects (high risk and/or above $1M total contract value) take the longest, on average 6 months but often up to 10 months. To shorten it below 5 months is not even possible for better practice organisations. Lower-level maturity organisations (Level 1 and Level 2), struggle with complex projects and they often take in excess of 10 months.
The following table summarises our findings:
Table 2 certainly doesn’t let us draw a conclusion that procurement is nimble and agile. That said, many initiatives exist to streamline the process, which includes a closer cooperation between procurement teams and supplier throughout the whole process, rather than an arms-length relationship. This even works in the public sector, where probity concerns all too often prolong the process.
To read more about our research and what best practice looks like in procurement in 2022, download our Hitting the Reset Button ebook