Low-Value Procurement

Changing Times for Low-Value Procurement Processes

Old practices die hard, particularly in low-value procurement. However, an Australian start-up aims to change this.

Low-Value Procurement

The dubious, but common, practice of ‘get three quotes but still use the same suppliers’ is firmly under the spotlight. And, thanks to public scrutiny and increasing procurement governance, it might soon be gone for good.

A growing number of Australian Governmental agencies and private sector organisations are looking to make their spend more transparent. And many of these organisations are turning to a Melbourne start-up to increase their accountability.

Ending Entrenched Procurement Culture

Award-winning platform VendorPanel is revolutionising decentralised sourcing in corporate Australia, with growth in the past two years exceeding all expectations.

Launched in 2008 by James Leathem, VendorPanel has been through a number of iterations over the years. It aims to put an end to the corruption-riddled ‘three quotes and no change’ procurement approach that has become entrenched in Australian corporate culture.

The platform is used by hundreds of Australian organisations, predominantly government agencies, to increase transparency, compliance, and savings in quote and tender-based purchasing from their approved suppliers and the marketplace.

Leathem explains that low-value procurement had been largely ignored across public and private sector organisations in Australia. This represents a multi-million dollar risk for procurement professionals, with massive corporate financial leakage, and formal governance processes being allowed to fall through the cracks.

“It’s confusing and difficult for buyers. Traditional procurement systems and processes are complex. Buyers are left to navigate preferred supplier panels, approved contractor lists and the market with no real assistance. This complexity serves to make processes slow and painful, so buyers often just go with what they know,” he explains.

“Problems are compounded when staff are dealing with arrangements managed by multiple external departments or organisations, and where contract information is accessed via multiple websites, documents and intranets.”

Undetected Low-Value Procurement Expenditure

Most low-value procurement expenditure remains undetected. This is because it’s either hidden in email, or the transactional amount is too small for management to bother scrutinising.

This makes it pretty easy for an employee get away with giving low-value contracts to the same business every time, instead of a better performing, or cheaper, company.

“It’s not necessarily full-on corruption, but a ‘better-the-Devil-you-know’ approach of using familiar suppliers. Either way it can land professionals in hot water, particularly in government when it’s public money being spent,” Leathem says.

While the broader procurement industry complained about the issues that came with low-value procurement, nothing was being done to bring about change.

“There was a quiet acceptance that things were never going to change. Procurement professionals appeared resigned to the fact that a solution was impossible, because the problem was too big and messy. This was especially the case for procurement of Services.”

VendorPanel Leadership Team (L-R): COO David Bubner; CEO James Leathem; Commercial Director Matthew Clyne.
VendorPanel Leadership Team (L-R): COO David Bubner; CEO James Leathem; Commercial Director Matthew Clyne.

Procurement Match-Making

Leathem set out to disrupt the market after working with a professional services firm for corporate clients such as ANZ Bank, Fairfax Media, Macquarie and GE.

As part of his role, Leathem was involved in sourcing and engaging with supplier markets. The approach being taken was the best available to anyone at the time. It was a mostly manual approach using a series of internal databases and search processes.

“I saw an opportunity to automate the procurement match-making process by creating a honey pot that attracts the right people to you, rather than buyers always having to scour the market for what they’re after.”

Leathem started out by working with the local government sector, with the rationale that if it could work there, it could work anywhere. He secured a pilot across 155 local governments, and based on its success, VendorPanel was rolled out nationally across 550 local governments within 18 months.

The platform’s growth comes as the broader procurement industry searches for better, more efficient ways to tackle their role.

However, VendorPanel then had an unexpected challenge of showing the rest of the market that the technology was transferrable. Several years down the track this has been achieved, with hundreds of organisations now using the platform.

VendorPanel has now processed more than AUD$1.3 billion worth of sourcing from organisations’ own preferred suppliers, plus an undisclosed amount of public tenders and marketplace sourcing, making it one of the fastest growing technology companies in Australia.