Clever procurement as a way to spend less

Saving money is as important as raising it. This blog gives useful tips on how charities can save with clever procurement.

Saving money is as important as raising it. And sometimes savings may come from unexpected sources. This guest blog gives useful tips on how charities can save with clever procurement.

 

The UK voluntary sector spends £17.8 bill/yr on goods and services[1]. That’s £67.5 million every single working day! I have been a procurement leader for 20 years. So, I know that restructuring the cost base to achieve benefits of 5 – 10% is not difficult. For the voluntary sector, that could mean a financial boost of £890 mill - £1.78 billion per year. Not exactly pocket change!

A £50m charity could access £2.4 million a year.  A lot of money for the sector. But what might that mean for your organisation? On average 48.5% of the voluntary sector’s earnings are spent on goods and services.[2] So, a £50 mill/yr. charity with a similar turnover/spend ratio, could uncover a hidden treasure worth £1.2 mill/yr. - £2.4 mill/yr. But even organisations with much lower external spend can benefit. In fact, you should consider looking at your procurement processes when your annual spend hits millions.

Anyone can reduce costs by accepting lower quality, aka shooting yourself in the foot. But that’s not what we are talking about. We are talking about managing total costs while ensuring you obtain an optimal price/quality balance. Big business has been doing this for decades. They continually use purchasing power combined with procurement skills to save fortunes AND maintain optimal quality.

83% don’t adequately challenge suppliers on cost and performance.  But what can voluntary organisations without comparable purchasing power and procurement teams do? More than you think! For example, a simple thing like systematically challenging suppliers on costs and performance. Running tenders. Negotiating better. Even Small and Medium Enterprises are not particularly good at that. In a survey of 200 senior UK SME managers, conducted by eProcurement provider Wax Digital, 83% said their companies don’t adequately challenge suppliers on cost and performance.[3]

Having too many suppliers means money wasted.  Supplier consolidation is another area. If your spend is spread over too many suppliers, you will pay standard rates – no discounts for you! A £50 mill/yr turnover company I worked with had used 600 suppliers over a 3-year period. For comparison, the entire NHS uses 500 suppliers![4] With a planned 2017/18 spend of £124.7 billion, the NHS,[5] is 2,540 times larger than the company in question. If you have more suppliers than the NHS, something is off…

Bundling spend with few suppliers gives you better purchasing power and, therefore, better deals. And don’t stop there. Joining existing purchasing consortia to pool your purchasing power with other organisations will free up even more money to re-invest in the cause. If you can’t find a suitable consortium, create one!

Ineffective procurement governance leads to unnecessary costs.  Then there are those past purchases we’d rather forget. That deal which didn’t work out as expected, locked you in, was too expensive or otherwise disadvantageous. Absent or ineffective procurement governance was to blame. People are just trying to do their jobs. But without effective guidance and support, spending mishaps will continue to happen. Clear processes, authorisation levels and helpful guidelines will mitigate that risk.

Uncovering treasures never ends.  But what if your organisation has done “all it can”? What if you already run a “tight ship”? Surely then there are no more treasures to uncover. The truth is that your procurement journey never ends. That’s why large organisations keep procurement teams perpetually employed.

The approaches mentioned above: (1) negotiation; (2) bundling spend; and (3) governance, are things organisations at the beginning of their procurement journey often consider. The “low hanging fruits”. They’re quick, easy, and free up significant funds for re-investment. There are many additional activities you could focus on. Whatever you do, ensure your procurement and organisational strategies are aligned.

Later in your procurement journey strategies and tactics may change. There are lots of options. Depending on your situation, you could:

  • Manage supplier relationships to access supply market innovation which supports your mission.

  • Analyse and re-engineer internal processes to reduce total costs, essentially taking out waste.

  • Analyse the way goods and services are used and take steps to manage demand.

 

Good procurement helps overcome the biggest barrier to giving.  Benefits from better procurement go well beyond freeing up money to re-invest in the cause. Your existing fundraising activities will be more effective too. A 2017 Lloyds Bank Foundation report[6] mentioned falling public trust in charities as a major issue. And according to Charity Awareness Monitor data (nfpSynergy, July 2016) the biggest barrier to giving is the perception of “too little money actually going to the cause”. Convince donors you have effective processes in place to generate and re-invest savings, and you stand an excellent chance of breaking down that barrier.

Do you want the hidden treasure? So, how do you get started uncovering the hidden funds you now know exist? I have written a concise action oriented guide for you called, How to uncover hidden funds – a voluntary sector procurement guide”. It shows you how to discover where and how you can take costs out. And it helps you assess how much money can be reinvested in the cause. If you are too busy to do it yourself, you can have a benefits assessment done professionally for free.

Ignoring, say, HR or Fundraising isn’t an option. Similarly, you cannot afford to ignore the need for empowered procurement. The benefits are simply too great!

 

Armand Brevig, Managing Director of Procurement Cube (www.ProcurementCube.Org). You need value for money, total cost control and competitive advantages. We deliver that through our empowered procurement solutions. Procurement Cube is dynamic, creative and effective. You can contact Armand on armand.brevig@procurementcube.org