It may seem counter-productive to talk about ‘investing’ during a time when prices and inflation seem to be ever-increasing, but now is precisely the time to be thinking smarter about your organisation’s procurement. There are urgent issues in the economy and markets and costs are increasing. These, inevitably, are being passed onto the buyer and unless those buyers have a managed, strategic and tactical procurement solution then this can present immediate and long-term risks.
Why is NOW the right time to invest in procurement?
To answer that we need to refresh ourselves as to what procurement does…
Procurement (or purchasing) is central to all organisations. It is the securing of supplies, goods, services and works that enable an organisation to function effectively, deliver services and products to their customers and stakeholders and helps it to remain compliant with legislation (where it is public sector in particular) or charity commission financial requirements (where it is a charity).
In a world where there is much uncertainty and prices are volatile, well-managed and effective ‘strategic’ procurement can help navigate a path and in most cases steer an organisation to ensure that costs are managed, controlled and supply remains secure. Not only that, but Procurement can deliver significant value to the bottom line, through savings, but also by being an enabler of outcomes. Good, solid procurement can help deliver the strategic aims and objectives of the organisation and deliver tangible social value benefits too – but only if it is invested and equipped to do so!
So, let’s look at an organisation with no strategic procurement oversight or control?
What are the risks if an organisation has no strategic procurement function or any control over procurement, spend or contract management?
Here’s a few:
- Spend is a free-for-all – Likely your team members and managers have no idea which suppliers to approach and are likely undertaking all manner of purchases.
- There is no or little visibility of spend or contracts – In the absence of a controlled, managed procurement operating model, the organisation will not know who you are in contract with and worse, whose terms you are on. This leads to the next big issue:
- You will be losing money – Without pre-negotiated deals and supplier contracts in place, it is highly likely you are paying over the odds for goods and services. Leverage is all important in negotiating good deals and in the absence of a co-ordinated approach to procurement and harnessing your buying power, there is no incentive for suppliers to offer discounts and better deals. Furthermore, with prices going up, suppliers will be looking to pass those costs down to you, the buyer. Without a contract that controls price fluctuations and costs, there is no leverage to be able to avoid price increases. Moving to another supplier is an option but then you are starting all over again.
- Staff are wasting time – Without a managed procurement solution, corporate contracts and supplier agreements, it’s safe to say that staff and managers in your organisation will be spending a disproportionate amount of time undertaking procurement from scratch, and likely not very well, resulting in duplication of effort, loss of buying power and leverage and disparate levels of quality and service from suppliers. Not to mention multiple suppliers for the same product/service.
If this sounds a little dramatic then it’s meant to. Procurement is a serious business and without a reasonable handle on it, the risks are significant, and they compound with time. The world in which we currently operate is a riskier place now. Traditional ‘good faith’ agreements between buyers and suppliers are often insufficient to cope with the demands on modern supply chains.
Step 1 – Insight and Visibility – Getting better visibility of your spend and contracts is an essential part on your journey to procurement maturity. Gaining an insight of your spend, who you are spending with, what you are spending on, categorising which of those spends are in or out of a formal contract is key.
We can help: Our spend analysis tool can take a data download from your financial ledger and we can map and categorise that to provide you with a comprehensive report on where you are spending, with whom, what spends are critical to your organisation, in what categories you are spending, where there is duplication, and where there are potential savings to be made. We can also provide you with a contracts register tool and begin to populate that with your existing contracts to highlight those spends which are ‘out of contract’ and therefore are at high risk. This simple ‘visibility’ exercise is incredibly powerful and will help you and your stakeholders to understand where the gaps, risks and, indeed, opportunities are.
Step 2 – Act – Then it is time to act upon the intelligence gathered through your data and putting in place solutions to meet that need. Those solutions could be:
The important thing is to target the top spends by risk and value. The risk to your organisation should that particular supply fail, and the value to your organisation in terms of its impact on your bottom line. 2buy2 can provide tried and tested solutions for all those needs and we have worked with many organisations that have benefited from our experience and skill gained from years of helping organisations develop their procurement maturity.
We save more than we cost – and deliver added value on top!
The final message
The world is becoming increasingly challenging, we’ve seen that in the last couple of years with Covid! Costs are rising. Supply is not guaranteed. To weather these years of uncertainty, it is vital that organisations take their procurement seriously and start investing. Your procurement maturity journey only needs to start with a simple step to get an insight of your spend, then the rest will follow.
Don’t delay and start investing in procurement today!
Be sure to see how our solutions can save you time and money throughout your procurement journey. If you want to ask any of us a procurement question you’re struggling with, don’t hesitate to contact us and we’ll be on hand to help you ASAP.
