When prices are rising is the time to invest in procurement
BY: NATHAN SWINNEY, HEAD OF CATEGORY AT 2BUY2
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.
- There is little or no supplier management – Without an oversight of strategic procurement, there is no assessment as to which of your spends are ‘strategically critical’. The impact of which (if those suppliers were to fail), would have devastating consequences on the ability of your organisation to function. Think about that essential IT system, or your energy contracts, or perhaps your security systems? If those rely upon suppliers and there is no centralised management of those suppliers or there are no robust terms and management of suppliers, then you will be at risk and that risk could be extremely short-notice.
- Loss of opportunity – Without a strategic procurement oversight you could be losing out on extensive savings opportunities. Money which could be badly needed to support and deliver more meaningful services and solutions for your organisation. You could be missing out on innovation, ideas from suppliers who feel secure in their relationship with you to share and test new ideas, which could prove transformational for your organisation. You could be missing out on social and environmental improvements in your supply chain. This is now highly valued by customers, service users and stakeholders and can make the difference between how popular an organisation is. You could be missing out on increased resource potential because your staff are wasting time repeat purchasing and duplicating processes.
- Reputational damage – If all the above were to happen, then the consequences would not just be financially, contractually and commercially damaging, but ultimately it would be reputationally detrimental for your organisation and your customers/clients and/or service users. The damage is limitless.
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.
So how can you invest in procurement?
To see any improvement in strategic procurement, it can be as easy as three simple steps:
- Step 1 – Insight and Visibility
- Step 2 – Act
- Step 3 – Embed
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:
- Re-procurement of strategically critical spends
- Establishment of ‘corporate’ contracts and solutions for all staff to follow
- The establishment of an organisational procurement policy, strategy and procurement template documents
- Re-negotiations with suppliers or indeed market analysis and engagement to refresh suppliers and get in place robust contract terms
- Establishment of procurement processes, procure2pay processes and reporting
- Review of procurement roles and responsibilities across the organisation
- Investment in procurement training and support to target individuals with procurement responsibility
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.
Step 3 – Embed – Embedding is then ensuring that your procurement operating model is working. That those solutions identified in Step 2 are being done and rolled out and that your organisation is feeling the benefits of improved strategic procurement. This takes time. Procurement Maturity does not happen overnight and requires the winning of hearts and minds across the organisation to truly embed. 2buy2 can help and we work with many organisations on a retainer basis to help build this momentum and embed strategic procurement.
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.