Category Archives: technical procurement

3 Ways Procurement Can Make A Lasting Impact On The Organisation

Advanced procurement functions, and the CPOs that lead them, can make a significant and lasting impact on the success of their companies, but only by focusing on the real value and innovation that suppliers can bring…

By Jacob Lund/ Shutterstock

There’s no doubt that procurement enjoys a privileged position in a company’s value chain. Sitting between a network of thousands of suppliers and the business, it has clear visibility of customer need, company strategy and the capabilities that exist in the supply base

From such a position, advanced procurement functions, and the chief procurement officers (CPOs) that lead them, can make a significant and lasting impact on the success of their companies, but only by focusing on the real value and innovation that suppliers can bring and how this can support the organisation’s ultimate value proposition.

To do so, procurement must drive change in three broad areas. Firstly, CPOs must address the procurement operating model so it is better aligned with company strategy and end-customer value. Historically, procurement has segmented third-party spend into categories, from raw materials to office furniture to semiconductors and so on, with the ultimate goal of leveraging scale to reduce price, while also managing risk and quality.

Smart chief executives, however, will be far more interested in how suppliers can enhance the product portfolio to maximise the company’s competitive position in the market. Aligning the supply base around that portfolio will enable supplier innovations to feed more successfully into that goal and ensure collaboration with suppliers is more productive and more focused on value creation.

Of course, this isn’t feasible for every last drop of third-party spending so CPOs must differentiate between core and non-core spend, so 100 per cent of the procurement function’s energy can be applied to those suppliers that really matter.

Secondly, for this to be feasible, CPOs must ensure procurement is a frictionless experience for those in the business who buy as part of their role. Every effort should be made to automate through digital technologies and platforms, so the actual buying process is seamless and efficient.

Robust governance and a sophisticated suite of digital technologies that have been designed with the end-user in mind must underpin such an environment. And the ultimate goal must be to reduce the time and resource spent on non-core products and services, without sacrificing low cost, impacting quality or introducing risk.

This laser-guided focus on execution must be a cross-functional effort, so the right specifications are secured and any savings go straight to the bottom line and are locked into the profit and loss.

Thirdly, the very fundamentals of supply markets continue to evolve. It’s clear an increasing volume of the world’s innovation is being developed outside the walls of large corporates and big, traditional suppliers, with smaller, niche companies and startups working on new technologies and approaches that regularly disrupt traditional, incumbent markets.

Further, these non-traditional players work differently, are more agile, less process led, more open to collaboration and come with large amounts of risk. But despite this, corporates cannot afford to close their doors to the innovation taking place within them.

CPOs must develop the capability to engage with these outliers and engineer how the intellectual property they produce can be introduced into their organisation’s value chain, whether through traditional onboarding as suppliers, technology licensing, collaboration with other suppliers in the network or myriad other potential approaches.

In essence, CPOs must build and exploit supply networks, or ecosystems, capturing value during the collaboration that takes place between third parties at all points in the value chain.

None of this is straightforward and few organisations are even close to making it a reality. To be successful, it demands the support of a visionary chief executive who understands the dynamics at play in the supply base and beyond, as well as a procurement team full of intellectually curious, entrepreneurial and collaborative personalities.

But if done well, procurement will evolve from a position of controller to one of value architect, and one of the most critical functions in any modern corporation able to positively impact revenue, sustainability and profit targets.

This article, edited by Peter Archer, was taken from the Raconteur Future of Procurement report, as featured in The Times.  

Time to Tune into the Real Social Network

Procurement has not only great power, but also great responsibility to help drive social change. And embedding social value in tenders is only the start.

By STILLFX / Shutterstock



“No fundamental social change occurs merely because government acts. It’s because civil society, the conscience of a country, begins to rise up and demand – demand – demand change.”

Former Democratic Vice-President Joe Biden

Where does the real value of a contract lie for public sector organisations? Is it in achieving a low price for goods, services or works? Or in savings in the ongoing management of a contract? Could it be in maintaining critical services for vulnerable people? Perhaps in creating innovative solutions to issues that improve the lives of all citizens in a Local Authority, or wider, area?

The truth is that it is all of these things and more. Fundamentally, the delivery of services are the lifeblood of public sector organisations and the contracts, be they for goods, services or works, are the foundation of this. But where, in the past, there may have only been a focus on cost and quality, the expectations on and in procurement have changed markedly.

The change is shown in how procurement approach the nature of the total value of the contract. Not just the cost and quality, but what it actually delivers for wider society beyond the scope of requirements. Call it social value, call it social benefits, procurement are front and centre for organisations looking to embed this wider value into their contracts.

Fair Work and Community Benefits

The Public Services (Social Value) Act 2012 was introduced in order to ensure that public bodies consider how the services they commission and procure might improve the economic, social and environmental well-being of their local area. However, it won’t be until later this year that contracts placed by central Government in the UK will have a mandatory requirement for social value considerations.

And this is where part of the issue lies in putting social value considerations into procurement processes. This regulation was only suggested and introduced in response to the collapse of Carillion, with the aim of “restoring trust between government, industry and the public”. Up until this point, any social value considerations had only been a consideration, rather than a mandatory evaluation criteria.

All this means that there are a considerable number of procurement professionals in the UK who have never put social value into their tenders or contracts. Any new measure, as with anything else, will require extensive training for buyers at a time where resources are stretched thin and training budgets are nigh-on non-existent in many cases.

However, there are a number of public bodies, particularly north of the border, who are already doing this. In 2015, the Scottish Government unveiled new guidance on making Fair Work Practices in public procurement. This included considerations on the Real Living Wage and made it a requirement for procurement to consider this as an evaluation criteria for each tender they undertook.

Now, nearly all Scottish Local Authorities have Fair Work Practices as an evaluation criteria in all procurement exercises. At Glasgow City Council, for example, Fair Work Practices has a defined weighting of 5 per cent, alongside Community Benefits as either as an evaluated (weighted at 10 per cent) or non-evaluated criterion.

Benefits for ALL to See

For procurement, Community Benefits and Social Value come in two main guises – what we expect from our suppliers; and what we expect from our purchasing. If procurement truly wants its suppliers to get tuned into this social network, then they need to be leading from the front. This means not only mandating it in contracts, but also engaging with Social Enterprises and running social projects of our own.

Investment in Social Enterprise will help to grow an already thriving sector which employs around 5 per cent of the UK workforce and is worth £60 billion towards UK GDP. The Big Issue, The Co-Op, Jamie Oliver’s ‘15’ restaurant are among the most well-known of these organisations.

(On a personal recommendation, try ‘Street and Arrow’ in Glasgow or ‘Streat’ in Melbourne and you’ll be doing your bit to support social enterprise!)

Beyond this, there are great examples of how large organisations are taking steps further to support social enterprise and add social value to contract. Liverpool Victoria is building extensive work with social enterprise into all of its procurement processes and is encouraging its own suppliers to get involved too.

Time to Grow your Network

Now it’s time for you to get involved and to make sure that you join your fellow procurement professionals in changing the world, one tender at a time. There are a couple of easy steps you can take and you don’t need to start big to get things up and running.

First, search out all the information and guidance you can find on social value, social enterprises and embedding this in procurement processes. Then find out whether or not your organisation is evaluating Community Benefits or Fair Work Practices as part of their tenders. Is it a mandatory criterion? Do your stakeholders even know about it?! Look to see if there is scope to add this, even starting with it as part of a wider question.

Finally (for now at least) you can start to look at contracts that could be performed by a social enterprise. Common ones include office supplies, coffee and catering, but the full list is much longer than that. There’s even provisions in the Public Contracts Regulations (2015) for run tenders for supported businesses only, which could put you well on your way to making a real difference in procurement.

After all, it’s what we’re here to do!

I’d love to hear your thoughts on this article and the series of articles on the challenges facing public sector procurement in 2019. Leave your comments below, or get in touch directly, I’m always happy to chat!


Like what you’re reading? As a procurement or supply chain professional, we truly value your opinion. And that’s why we want you to tell us what you want (what you really, really want) to see on Procurious. Click here to take our ten-minute survey and help us, help you!

A Cross-Industry Look At Direct vs Indirect Spend

Vishal Patel explores the difference between direct and indirect spend across three different industries…

By jirawat phueksriphan/ Shutterstock

The most fundamental spend categorisation in procurement is the line between direct and indirect spend, but one effort that transcends this split is supplier management. This includes supplier information management, supply chain risk management/mitigation, and supplier performance management.

Whether spend is direct or indirect, supplier information should be maintained centrally and with a high level of accuracy. Who is the supplier, who are the points of contract, what are the terms of service or delivery? How much spend does the company have with the supplier and for what? As long as indirect suppliers are meeting expectations, they are doing what is required. Direct spend suppliers, on the other hand, must deliver a different level of ROI. Meeting expectations is the foundation for strategic partnership and collaboration.

Manufacturing

In manufacturing, materials, components and assemblies that will be sold to customers are direct spend while facilities, equipment, consumable supplies and MRO are indirect.

Direct suppliers often become strategic partners because the company’s collaborative efforts with them have a direct impact on innovative potential. They make it possible to develop products that lead to the expansion of market share and profit margin, both through their product offerings and their ideas. They sometimes participate in the R&D process, adding their IP to the company’s own.

Because of the key contributions these supply partners make to corporate performance, procurement needs to pay far more attention to risk and quality issues – whether they are present in the supplier or in their supply chain. Ensuring continuity of supply is far more critical when a supplier is a strategic partner and difficult to replace.

Most indirect supplier relationships are far more transactional, although services and deliveries still have to be dependable. Customer orders can’t be filled on time if machines don’t run, safety supplies are out of stock or facilities are poorly maintained. While procurement might not consider these relationships strategic, they are critical nonetheless. What you don’t necessarily want to do is separate your direct and indirect supplier information, risk and performance management efforts, ideally, you want to be able to look across all suppliers and spend.

Financial Services

One could make the case that financial services firms have no direct spend. Since salaries are beyond procurement’s purview, nothing the company ‘buys’ is resold to customers. That said, supplier information and relationship management are still high priority efforts. Risk and regulatory compliance requirements span nearly all categories of spend, and address global, high-profile concerns such as bribery, corruption, and data protection and privacy. We’ve all heard of KYC (know your customer) initiatives in banking for example. KYC has now gone beyond verifying and monitoring customers of the financial institution and now also often includes suppliers that provide IT solutions that touch the FI’s infrastructure (and thus their customers) called know-your-suppliers (KYS). For instance, a key piece of information that is often difficult to find but critical is knowing the ultimate parent of a supplier.

Although the vast majority of a financial services company’s spend is indirect, it can still affect the top line. In the case of banks, for instance, property management is critical to securing and maintaining customer loyalty and reinforcing brand identity. The remainder of indirect spend includes the ‘usual suspects’ like office supplies, travel and IT/telecom but often with a heavy services procurement need

Healthcare

Not unlike financial services, procurement teams in healthcare organisations are predominantly focused on indirect spend. The primary exceptions are the equipment and facilities that patients come into contact with. These indirect spend items have a direct impact on patient satisfaction despite not being resold. Machines must be running, supplies must be plentiful, and facilities must be spotless.

For the rest of indirect spend, Group Purchasing Organizations (GPOs) are common, based on the fact that the vast majority of transactional purchases are common across institutions. There are cases, however, where physicians need to have additional selection authority. These non-standard items, often referred to as Physician’s Preference Items (PPI), can present a challenge in terms of finding a qualified source and managing the cost and supply of the items. Those purchases, while indirect, do justify closer and more strategic supplier relationships, similar to a direct materials supplier

Supplier management is spend management – although the information, risks, and relationships vary by category and industry. Procurement’s challenge is knowing which supplier relationships are strategic and deserving of additional effort and which are not (but still knowing who they are) – regardless of the type of spend in question. Overall, having a strong supplier management capability and technology can work as a solid foundation to accelerate and improve digitisation and transformation efforts in all areas of procurement.

Ivalua is sponsoring the upcoming Procurious London CPO roundtable on 29th May. If you’re a CPO and would like to attend one of our roundtables in person please contact Olga Luscombe via [email protected] to request an invitation.

What Every Procurement Professional Needs To Know About Music

How much should you pay for using music in a commercial?

By PopTika/ Shutterstock

Around 70 per cent of TV commercials use music in one form or another. That is a lot of music. And a lot of money being paid by brands and their agencies to the music industry.

Procurement departments ask us three questions:

  • Can you explain to me why we are paying so much for music?
  • Where can we make savings without compromising creativity?
  • How do we know that the music we are paying for works?

Library music (with their regulated rate cards) still often feels like the poor relation to the agency creative team. Fees for commissioned music and new productions can be as creative as the music itself. And copyright owners don’t have rate cards because it is forbidden by law.

So, to a Brand and their procurement departments, negotiation on music rights can feel like operating blindfold. The underlying challenge is that the parties involved all have a different agenda. Procurement needs to work within the budget. The creative teams don’t want to know about budgets – they just want the track that they believe works with their brilliant visuals. And the TV producers have a harder job than David Davis at the Brexit table with a deal that works all round. No wonder there is tension between the will of the agency and the chequebook of the brand.

Giving a straight answer to a brand about buying music usually demands more questions:

  • Do you have a full breakdown of your music spend, beyond a total amount spent?
  • Do you know where you are spending your money and with whom over the last three years?
  • Do you or the people who buy music on your behalf have a music-buying strategy that you have seen and approved?
  • Do you have centralised buying of music across all agencies and all media?
  • Do you ever test the music you buy which goes beyond ‘like’ and ‘dislike’?

It is still common practice for music to be a one-off consideration for each campaign and for each agency production department to negotiate and buy music. Very often, final decisions about the music are left to the last minute in the editing suite, when the creatives make up their minds what works best. But when things are left to the last minute, people are under pressure to negotiate.

And when things happen this fast it is harder to justify taking time to test the resonance of a track with the desired target market.

But these two apparently small steps have vital ramification on the final outcomes. I know of a brand where the music was changed in the editing suite for the sake of saving €15,000. Six months and €7.5 million later, when consumer testing did take place, the brand was mortified to discover that the last-minute music change meant that consumers missed the point of the ad completely – in hindsight, a very expensive cost saving.

It’s natural for people to spend money on the things they care about, whether they are fully aware of it or not. In business, however, we have to be aware and strategic. If buying music is still seen as a one-off transaction and the discussions about the costs feels like one from ‘Groundhog Day’, then something has to change.

There is not one solution for all companies, but having a music-buying strategy is a good starting point. It removes ambiguity and puts measurable systems in place. For the above – mentioned brand, it meant ongoing savings of 25 – 30 per cent year on year with commercials that scored well in post-production testing.

If music is not to be regarded as an expensive indulgence, we need to liberate those involved in the creative process and hand it over to people who are not, but still have all parties’ interests clearly in focus.

Ultimately, having real figures about music spend will make it easier for planning, production, and marketing teams to justify their budget requirements. That will be good news all round.

This article was originally published on Sound Lounge

Rush Hour: High Risk, Hidden Costs and Unexpected Travel Spend

Travel is complex, costly, affects the vast majority of your organisation’s employees, and everyone has an opinion on best practice. It is also one of the most “mature” categories managed by procurement professionals. So why so many challenges?

Travel was one of the very first categories ever formally managed by procurement.  It is what I like to call a “mature category”, which means we should have it well and truly under control…. however…

An eye watering $1 trillion is spent on corporate travel every year. 

It is a category in which the scope has mushroomed to cover not just air travel, transport and accommodation, but also expense management technology, teleconferencing, events – the full end to end complexity of corporate travel. 

Nestled within that, is the specific category of ground transportation. 

The transport industry has changed dramatically over the past fifteen years. The number of daily, corporate rides being booked has increased by 10 per cent since 2010, while personal bookings have increased by 58 per cent.

It is a category notorious for its administrative burden! And therefore, for procurement professionals, it is a category ripe for disruption. As it stands currently, travel costs are 10 per cent of total spend but 90 per cent of the headache. In some cases, it takes approximately 10 minutes to process a single travel expense claim and with an average of 7 receipts per person submitted per month – that’s a lot of wasted time!

By 2020, half of all these business trips will be done by employees expecting a B2C style user experience – online, on-demand, seamless and consistent.  

Blanketed over the broad scope this corporate travel category are some very serious concerns – sustainability, employee safety and cybersecurity.

And so today, as a corporate travel manager, you need to concern yourself with a whole new set of factors including:

  • employee safety
  • technology implementation
  • quality of service
  • sustainability
  • total cost optimisation
  • maverick spend

All this to manage, and we haven’t even mentioned pacifying your CEO’s when they’re bumped out of first class, or their chauffeur doesn’t turn up on time!

In our latest webinar Rush Hour: High Risk, Hidden Costs and Unexpected Travel Spend we explored the different aspects of how to manage the total cost of ownership within this complex, emotional category.

Sign up to listen now as we discuss:

  • Managing the total cost of ownership within this complex category 
  • How AI, IoT, Blockchain and other innovative technologies are transforming the way procurement pros work – improving transparency and mitigating risk in business travel
  • How to ensure corporations deliver a high quality and personalised serviceon a global scale
  • Why sustainability is coming to the forefront of global travel

FAQs

Is the Rush Hour webinar available to anyone?

Absolutely! Anyone & everyone can register for the webinar and it won’t cost you a penny to do so. Simply sign up here.

How do I listen to the Rush Hour webinar?

Simply sign up here and you’ll be able to listen to the on-demand. 

Why wait when you can have it now?

No one wants to wait more than five mins for anything these days – least of all for a taxi – or an on-demand webinar recording!

Luckily, Rush Hour: High Risk, Hidden Costs and Unexpected Travel Spend is now available on demand.

Click here to listen as we discuss: