Published Monday 16th November 2020
We’re all so busy doing the day job that the luxury of pausing to reflect on issues such as how we do our purchasing rarely gets to the top of our ‘to do’ lists. Supplying operations is key, to keep the business going.
But what if your purchasing is in need of some TLC? I offer a simple framework and a few observations for those managing procurement, to draw breath and consider how to do so effectively.
How do we break this into manageable chunks? My advice is to use the mnemonic INSIGHT. Consultants are good at coming up with mnemonics and I’m not going to be the one to buck the trend.
Step 1: Involve your team
Your buying team has significant experience of past issues, supplier performance and how you have arrived at the solution you currently enjoy (or don’t). Ignore this expertise at your peril.
But do ask them the following:
- What is working; what isn’t. Why.
- Which suppliers cause us the most problems (the 80:20 rule nearly always prevails).
- Is pricing stable. If not, why not and how much notice do we receive of price changes.
- Are service and quality an issue. Is the situation improving/deteriorating.
- In what areas of spend do we have an internal skillsgap, if any.
Procurement can be a thankless task. By listening and valuing your team’s contribution it will signal that their input is important. Put your team at the heart of things, give them the necessary authority and make them responsible for their outcomes.
Step 2: Determine your need
Businesses change over time. While something seemingly as minor as e.g. purchasing hardware may not appear significant to your business strategy, don’t squander resources through not determining the need to as granular a level as possible.
I have a client who had 75 desktop printers. Despite our recommendation that they could reduce their fleet by 60-70% they elected to base their renewal on 50 machines. Five years on and at least half of these have never been used. The need to be flexible to meet the unknown is laudable but this over-resourcing was an unnecessary and avoidable expense.
Consider other factors. Has your supply chain been impacted by COVID? Whilst this was not foreseeable, how often do you risk-assess your supply chain. Could changes in technology affect your purchasing needs. Does a new supplier’s disruptive approach serve you better. ISDN lines become redundant in 2025. If your current service expires before then, what are your options.
Step 3: Speak with your suppliers
I am surprised how few businesses do this effectively. Most talk to suppliers when there is a problem; few talk to them regularly to discuss performance and the future. Yet I see plenty of evidence of how innovative suppliers can be. Have they a new and improved product or process that might serve you better; can they suggest ways to do things more effectively, efficiently, cheaper or quicker? Maybe they do.
If regular review meetings are scheduled then service and quality issues occur less frequently because suppliers know any shortfalls will likely be raised in the near future. Regular meetings can also give early warning of problems, characterised by changing personnel, last-minute cancellations and lack of progress.
Setting and measuring KPIs is also important. More of this in Step 6.
Step 4: Innovate
Innovation is an overused word but as Einstein once famously said, the true definition of insanity is doing the same thing over and over and expecting different results. Critically review your purchasing policy. If it is based on getting 3 quotes then it needs rewriting.
What opportunities can you take advantage of. Do you know what ‘good’ looks like. If not, then why not consider using external help in the same way you may currently use energy and insurance brokers.
The mantra here is ‘Is there a better way of doing things’. Ask what suppliers want from you to offer a better service. Can you help them achieve this? Can you adopt 48-hour fuel ordering rather than 24 to reduce costs. Can a supplier set up a portal that displays your core items, prices and stock availability in real time, thus helping you solve your maverick spend, budget delegation issues and items just not turning up, in one fell swoop.
And what about your procurement process itself. Are there areas of risk regarding committing the business to contracts? Is your approvals process tedious. How agile are you in reality compared to how you think you are. Do your staff circumnavigate the rules.
Step 5: Group goods & services together where possible
Historically, a review of indirect spend would likely be based on siloed categories, each with little interdependence. The trend now leans towards reviewing a handful of areas that have synergy.
No good reducing packaging spend by introducing materials that impact on waste collection services. Does bundling IT support, licensing, managed print, communications and data into one large project offer better value?
Rather than reviewing pre-planned estate maintenance, security, grounds maintenance and so forth in a linear fashion, can you review all soft or hard-FM requirements as one lot to save money and reduce the number of touch points needed to manage such disparate areas.
It is sound procurement practice to bundle goods and services wherever possible, to maximise leverage with suppliers and to ease the management requirement.
Step 6: Have a plan
..to measure results. If you don’t measure then you don’t manage. Your aim is to make the subjective as objective as possible. Develop KPIs using SMART principles. Make it easy to measure, keep a record and use this evidence during your regular supplier review meetings.
Many suppliers have their own auditing process and will measure their own performance, but keep your own record of how things are going too. Do they align?
Without KPIs your only analysis is based on anecdotal evidence, with little to catalogue over time to show progress and to inform decision-making.
On numerous occasions ERA audit evidence has led to obtaining credits, rebates and even quashing liability payments sought by suppliers who were underperforming.
Step 7: Tender your full requirement
I have sat in several implementation meetings where a client has asked a supplier why savings identified via ERA processes far exceed their own results. The answer? Being presented with the full requirement enables suppliers to price more competitively.
Don’t spot-buy to save single-digit percentages. You may win a battle but you are unlikely to win the war. If you set out your total requirement then suppliers can see the ‘size of the prize’ and respond accordingly.
So there we have it; INSIGHT. This is not is a roadmap to perfection; more an aide memoire to keep your process in check.
I hope this 7-step framework will help you formulate an effective approach to procuring your own indirect goods and services.
Let me know how you get on.
About the Author: Chris Wardle, has worked in the catering sector for over 30 years and his experience covers a range of roles and service sectors including Hotel Food & Beverage (F&B), housekeeping and reception, clubs, event and rail catering. He served for over 20 years as a catering officer in the Royal Air Force in operations director and food supply roles in the UK, Falkland Islands, Bosnia and Afghanistan before retiring in 2012.