There’s more to short-term contracts than covering someone’s maternity leave: there are very good reasons to employ contingent labour – for you and the contractor alike! Sam White from Argentus unpacks the strategies behind Contingent Staffing.
Economists have done a lot of analysis on the rise of the so-called “gig economy.” More workers are using short-term contracts and other forms of employment to provide additional income to supplement or replace permanent jobs – think Uber, DoorDash, etc.
But more and more companies in a variety of industries are also bringing on high-skilled contingent labour for white collar positions in a number of impactful business functions like Technology, Procurement and Supply Chain.
These roles typically have similar compensation to permanent employment, with the exception that they’re on a fixed term (typically three, six, twelve, or eighteen months). Working more independently and “hitting the ground running” faster than perm employees, these workers work in consultative fashion to expand Supply Chain and Procurement capability for their clients, and then move on to the next contract.
For many of the top performers, contract work is no longer a stop-gap to permanent employment – it’s an opportunity to work in a variety of industries and projects, and broaden their experience.
So what situations are these companies using contingent staff for?
There are a variety of business cases that corporate leaders are making for contingent staffing, recognising it as a strategic and cost-effective tool in their hiring arsenal.
We put together this infographic to show some of these use cases. It places a special focus on our recruitment specialities of Procurement and Supply Chain, where our clients have increasing needs.
We start from the less strategic, more common reasons for hiring contingent staff, and move into the strategies that the most innovative business leaders around are adopting today.
This article has been republished here with kind permission from Sam White at Argentus. What’s been your experience with contracting and the gig economy, as a worker or in hiring staff? Let us know in the comments below.
Been asked to justify every single expense for your procurement project? Here’s how to implement a strategy that works to do this.
Picture this (and maybe you don’t need to because it has already happened): you’re successfully managing a procurement project – one which you consider to be critical to the organisation – then the unthinkable happens: The CPO approaches you and says “Times are tough and we’re cutting costs. As of today you have no budget. Prove to me why you need one.”
It sounds extremely harsh; not to mention unrealistic! But is it? Reevaluating everything from the group up is one of the big supply chain and procurement ideas we think will change everything in 2021. But how do you successfully adopt such an approach, and what benefits can it bring?
What are the benefits of working from the idea of a ‘zero budget?’
It’s a well-established fact that most of us in procurement are trying to save our companies’ money right now, but we’ve all equally acknowledged that simply asking our suppliers for a blanket discount is not only inappropriate, but just won’t deliver the savings we need. So what should we do instead?
One effective cost control method is to imagine you simply don’t have a budget for the procurement project you want to undertake. To start this process, you meticulously analyse every single line item in your project, and attempt to justify its existence. This strategy, which is effectively the opposite of relying on historical purchasing patterns, enables you to rethink and justify everything you’re doing – and hopefully figure out how to control costs more effectively in the interim.
This approach, which does require a considerable amount of time and effort, has in years gone by been dubbed ‘too harsh.’ But how about during years like the one we’ve just had? It may well be realistic, appropriate and, most of all, needed.
How do you restart the planning process for your project with no budget?
If the idea of justifying every single line item cost in your procurement project sounds like a lot of work, it’s because it is. But it certainly isn’t no pain for no gain, as the level of analysis required enables you to innovate and cut costs in ways you never would have imagined.
In order to implement a such a strategy, experts recommend the following:
Get into the mindset of ‘you have no budget. Prove to me you need one’: As harsh as this sounds, this is the exact mindset you will need in order to truly justify every single expense.
Get management’s buy-in: The analysis required to implement such an approach will likely take time (it may take weeks or even months), so buy-in from the CPO and above is necessary.
Know that training and dedication will be required: When committing to such an approach, there is no point trying it, and then reverting back when it’s too hard. It’s an all-or-nothing approach and you need to see it to the end for it to be effective.
In addition to the above, there is one essential question you need to ask yourself when implementing this strategy, and it might be a truly uncomfortable one. Discover what it is, and many other game-changing ideas, in our compelling whitepaper 100 Big Ideas for 2021.
We should care more about strategic supplier management right now, despite this being the time of COVID, budget cliffs, and “everything is on the table” portfolio reviews.
While procurement’s roots sometimes feel operational, based on the tactical action of turning a requisition into a PO, the trunk of the procurement tree is strategic sourcing. In even moderately mature organisations, we see teams organised around execution of an n-step sourcing process designed to consolidate volume with fewer suppliers and generate cost savings.
For those teams that have advanced to category management, there’s an effort to better understand stakeholder needs and the external market, and to build out a longer-term project plan to drive value beyond savings. Think of those projects as the branches that continue to grow and generate new value. Check out this post for more on cost savings opportunities and this one on post-COVID strategy.
It’s often not until we get past a certain stage of organisational maturity that supplier management really becomes an area of focus. In a seedling organization with a thin trunk, the idea of spending time out on thin branches may feel wasted when there is fresh spend to be sourced.
However, now that most procurement organisations are mature enough to be thinking about value beyond savings – and I believe most are, whether they are recognised for it or not – we need to think about the opportunities hanging off those branches. Where do we want to spend our time? On the thickest, strongest branches that can support our future objectives, with many offshoots for new value, of course.
Stepping away from the tree analogy (sorry if that went too far), what many of us in the function have learned over time is that more value can come from nurturing our existing supplier relationships than from sourcing events with new suppliers. In fact, when growth stagnates and we rely on these partners to see us through hard times, strategic supplier management can become a competitive differentiator. Companies with access to the latest technology, the best support levels, and the freshest ideas, are the ones winning in the modern world.
My first research study on Supplier Relationship Management (SRM) was back in 2006, and these concepts were just coming into vogue. Then I did two more studies, each five years apart, with very little difference in industry maturity.
In that time, I had numerous large organizations come to me saying, “we need to build up an SRM program.” Sometimes the same company, five years after the last attempt had failed and management was back to square one. Here I am again, testing the market with another study, this time focused on the practices and outcomes from our most strategic suppliers.
Why should we care about strategic supplier management right now, in the time of COVID, budget cliffs, and “everything is on the table” portfolio reviews? It’s important for a few reasons:
In times like these, we rely on our partners even more
As much as we want to run out and negotiate cost reductions, we all know many companies would not have made it through the last six months without a strong supply base. Monitoring risk and financial stability is critical right now. Knowing enough about the financials of a key supplier is important when seeking out savings – some are hovering on the brink of collapse, while others are doing just fine. (Talk to me about outsourcers’ margins here).
Innovation will get us out of this
If you thought digital transformation was a buzz phrase, wait until you are the only company handling paper mail from customers in a work from home environment while your peers have digitised their customer interactions. For those behind the tech curve, the last six months were more painful and lit a fire under some management teams to start investing. Who will enable that technology? Unless you have vast internal resources and capabilities, you’ll be leveraging third party partners (i.e., suppliers) to realize that vision. Categories like IT services are exploding with demand, and managing the outcomes of the largest partners will be critical to stay competitive.
Portfolio reviews should be fact-based
What does that mean in this context? It means that if you are deciding which suppliers to keep and which to phase out, RFP away, or replace, you need to have a quantitative understanding of past performance. Too often, opinions, anecdotes, and emotions are brought to the table to keep or remove a partner. Strong performance management processes mean decisions can be rooted in actual performance, and perceptions can be validated or addressed proactively.
With these current day realities in mind, Everest Group recently launched a Pinnacle Model® study specifically targeted at management of strategic suppliers. Our Pinnacle Model methodology maps capabilities to outcomes and attempts to find the correlation between best practice implementation and results. By plotting organizations against each other, we can clearly see what is working and what is not.
In this study, we endeavor to understand how procurement organizations are handling the following challenges:
Lack of clear stratification of the supply base. With most organizations having thousands of suppliers per billion dollars of spend, it’s important to know where to focus your efforts. If the squeaky wheel is getting the grease, it’s easy for category managers to spend too much time chasing issues with less impactful suppliers.
Inconsistent or ill-defined internal roles. Many organisations have groups managing suppliers throughout the business as well as SRM efforts from procurement. If roles and responsibilities of various groups are not well defined, there can be overlapping work and missed opportunities. We delve into the objectives and activities of Vendor Management Organizations (VMOs) and other supplier management teams.
Too much manual effort due to lack of automation. Service management tools are well developed within IT but may not be broadly used across spend categories. There are now Supplier Performance Management (SPM) tools on the market using AI to tie contracts to service levels. Without proper tools in place – and adoption is still fairly low – tracking performance, monitoring risk, and planning actions across the supply base becomes highly manual. This is, in my experience, a primary reason many SRM initiatives failed. When we rely on spreadsheets and sweat, without a hard ROI, this is the first initiative to drop.
Poor outcome measurement. Even if the functional scorecard measures outcomes – and many don’t – are individual category and supplier managers rewarded for work done to manage suppliers? It’s typical to, at best, measure activities such as number of business reviews. Too often, teams are focused on savings to the detriment of value driven by innovation, performance improvements, and risk mitigation, and other stakeholder valued metrics.
Taking all these factors in consideration, are YOU giving your strategic suppliers enough attention? Take our Pinnacle Model study here to find out. I look forward to reviewing the results with you soon.
Challenging, controversial and, for small organisations, potentially crippling, but for many, Loss Leading remains a popular strategy. Is there a sustainable way procurement can use this strategy to deliver real savings?
Loss Leading is the practice of selling products at, or just below, cost price, with the aim of bringing consumers into a store and then selling add-on items to the original product, or encourage impulse purchases. And when the average consumer spends $5,400 per year on impulse purchases, you can understand the attractiveness of this.
If you have been shopping for groceries, a new mobile phone, electronics or even a new car, the chances are fairly high that you have encountered a Loss Leader pricing strategy. So common are these deals across a whole range of goods and services that it’s probable you have encountered this strategy without even realising it.
It’s the notion that this strategy is somehow
underhand that, in spite of its popularity, has led to controversy. It’s even
been banned in half of US states and some
European countries. Why?
Because there is a widely held belief that the practice doesn’t promote
competition and may harm consumers in the long-term.
The fact that the strategy has been banned in half
of US states suggests that the practice has more negative connotations than
positive. In most cases, the belief is that Loss Leading actually reduces market competition to the detriment of the
Large organisations, the likes of Amazon, Walmart and Apple for example, have broad product ranges and the ability to withstand losses from these products by having a greater profit margin on others. Smaller organisations don’t have this luxury and either choose not to stock a product or sell it for more, reducing consumer choice.
It’s not all positive for organisations either. Savvy consumers may only look for the introductory offer or the products at the loss leading price, and not buy add-ons. This is termed as ‘cherry picking’ and may cause financial issues for even large organisations in the long-term. There may also be a knock-on effect in the supply chain as manufacturers may be required, or feel the need, to keep prices low so that loss leading strategies can continue.
There are positives for organisations and consumers though. Organisations may use it as a strategy to increase sales or engage consumers on a new product, with consumers benefiting from better deals and lower prices.
Could we then be looking at a situation where unsustainable loss leading is the issue, where the strategy is actively used to reduce competition or drive other organisations out of business? And how does all of this relate to procurement?
Sustainable Loss Leading
For procurement, introductory pricing and negotiated discounts are commonplace. Across all industries and sectors, suppliers will try to get a foot in the door with an organisation, offering lower prices, demonstrations and even free samples. While regulations and transparency should stop this having a direct correlation to contracts awarded, there is benefit that procurement can derive from this.
Where suppliers can accommodate lower prices, a
loss leading strategy on price plays right into procurement’s hands. As the
profession looks to drive down costs in both direct and indirect sourcing, procurement
looking for greater innovation and strategic buying initiatives to achieve
this, without just chipping away at profit margins.
The Power of GPOs
Let’s say, hypothetically, that procurement
professionals are looking at loss leading strategies without knowing that this
is what they are. A good procurement strategy would focus on ensuring that no matter
how low the price is, it is sustainable for the market and the supplier. After
all, it’s no use driving prices down and putting your supplier out of
What if there was a solution in the market that would enable sustainable loss leading prices over the longer term, which procurement could take advantage of? The good news is that there is in the form of Group Purchasing Organisations (GPOs). Linking up with a GPO doesn’t diminish procurement’s role, rather it enhances it. Supplier consolidation activities can be aided and it’s not a ‘race to the bottom’ in pricing, meaning that required quality levels will be maintained.
GPOs will assist in gaining the best prices possible through sourcing at bulk rates, without the individual organisations having to increase their purchasing volumes. The GPO can then guarantee that these prices stay low, at the ‘loss leader’ level for the life of the contract, through the use of pre-negotiated contracts and the fact that, due to the volume, even the smallest organisation is treated as a key customer for the supply base.
Turning the Negative Positive
As you can see, when done sensitively and sustainably, a loss leading strategy for savings can actually be a positive for procurement. Not only that, but by taking the route of the GPO, the strategy is open for the first time to smaller organisations, without the potentially fatal risks attached to it. As procurement strategies go, it’s a strong one, allowing for wider input and not undermining strategic supplier relationships.
Who knows, you might even earn your organisation a slice of that impulse spend. Now that would be a good outcome, wouldn’t it?
Want to know how to gain the benefits of sustainable loss leading without any of the negatives? Then contact UNA today and join their growing network.
The theme of money is a very common one in the world of books and film. So what can our favourite fictional characters teach us about increasing our savings?
It’s not too much of a stretch to suggest that procurement can learn a lot about saving from literary and film characters. Money is a common central theme in so many novels and movies and so it shouldn’t come as a surprise that there is a multitude of good and bad examples of how organisations can manage their money.
One of the many options available to organisations is to look for external assistance in the form of procurement consulting. To tie in with the idea of drawing inspiration from a network of sources, one particular strategy would be to use a Group Purchasing Organisation (GPO). A GPO draws uses the collective purchasing power of its members to achieve greater discounts and lower prices from suppliers.
The benefits don’t stop there. A GPO can apply various procurement strategies and actually increase organisational savings year-on-year. It’s about selecting the right strategy or strategies. And this is where our movie and book characters come in.
Strategic Buying and Mr. Micawber
Wilkins Micawber is a primary character in the
Charles Dickens novel, David Copperfield. The character has begat the ‘Micawber Principle’, which simply and eloquently states
that if annual expenditure exceeds annual income, then the result is ‘misery’.
Though he seems to be better at offering this advice than taking it himself,
this shows a good example of strategic buying.
In spite of some criticism faced, GPOs don’t encourage greater spending or higher volume of purchasing – this is a myth! They do, however, utilise the greater buying power of the collective over the individual to provide lower prices for members. And then, in addition, keep these prices lower in the long-term by leveraging higher volumes and pre-negotiated contracts.
Definitely no misery here if the strategic buying is carried out effectively, as this will result in continued savings for the organisation.
Monty Brewster and Centralised Procurement
If you haven’t seen the 1985 comedy classic, ‘Brewster’s Millions’, then finish reading this first and
then go and find it on whichever TV/film/streaming service you use! In the book
and film, the titular Brewster must spend $30 million in 30 days in order to
inherit $300 million. And there are a couple of catches:
if he fails to spend the full amount he is left with nothing;
he cannot tell anyone the reason for his spending spree.
Let’s set aside for a moment that this is every
procurement professional’s nightmare end user – off doing their own thing
without communicating anything.
One of Brewster’s main issues in spending the money is his well-meaning friend, Spike. While Brewster is off throwing money away, Spike is making shrewd investments and actually earning more. It’s the very definition of decentralised procurement.
A GPO helps to build centralised procurement in the organisation and in its network of members. Communication is key and demand management strategies are developed by procurement in conjunction with end users, reducing excess usage. This is all supported by GPOs providing metrics and benchmarks from the network for all members to use.
This again helps keeps the price down in the longer
term and reduces the likelihood of an end user going on a Brewster-style
Procurement Software and Nick Leeson
They say the best stories start with the kernel of
truth. Well this one is based on a true story which helps to highlight the
benefits of procurement software in both
traceability and compliance. Ewan MacGregor plays real-life ‘Rogue Trader’, Nick Leeson, whose attempts to save
and recoup money caused one of the biggest scandals in banking history.
Without trivialising the situation, or making light of what was a very damaging time for a large number of people, the film and real-life story highlight why organisations, and procurement within them, need high quality procurement software to track and manage spend. The concept of ‘you can’t save what you can’t see’, as well as ensuring that spend is compliant rather than non-contract or maverick, links heavily to the savings agenda.
Companies like Sourcing Insights provide world-class software and analytics which enable procurement to track and visualise data in real-time and see where future issues may lie. You may not have a Rogue Trader in your midst, but with the application of the right software you’ll have greater control on your spend which will help to deliver savings year after year.
There’s an idea in procurement that to get the best from spending, professionals need to spend the money like it’s their own. But how about you engage some procurement consulting and get them to manage your money like it was their own?
Whether you are a Micawber or a Brewster, you can access the best knowledge and software, knowing that your money is safe in their hands. After all, it would be nice to be able to point to this success the next time your CFO asks “show me the money”!
From savings and pre-negotiated agreements, to spend analytics and collective buying power, GPOs provide a wealth of benefits to procurement organisations. Find out more by visiting UNA.com now.
The US escalating a trade war with China by imposing additional tariffs on Chinese goods. The ongoing debacle of European trade policies over Brexit. The perennial Middle East crisis over oil. 2019 has not been easy for global businesses and their procurement professionals.
But given that it is only one-quarter of the exhaustion, could we benefit from an expert’s insights and frame strategies such that procurement can navigate successfully through the rest of the waters?
Sure! Zycus got in touch with the CEO & President of SIG, Dawn Tiura soliciting her point-of-view on how procurement professionals can navigate through the uncertain times ahead. Dawn, a former partner in a CPA firm, focused on early-stage Silicon Valley enterprises and high wealth individuals, kindly agreed to explain her actionable list of do’s and don’ts that every Procurement leader can benefit from.
Zycus: What elements should be central to our conversation on procurement in the coming year?
Dawn: One of
the important conversations that procurement teams all over the world should
reflect on at the moment is their understanding that every dollar-saved might
not directly translate into company’s eventual revenue objective but they do
improve the bottom line when the focus is consistent. We have the unique
ability to impact not only bottom-line savings but also top-line growth. We
have insight into all lines of business as they are making decisions, not in
the rearview mirror. And, we have relationships with suppliers who are incented
to bring innovation to us. If that is not enough, why not use equivalent
revenue? That will get the attention of the CFO, CEO, and Board.
Zycus: Most organizations majorly use hard dollar savings
as the primary parameter to measure procurement and sourcing performance. Would
it be safe to say it is a dated method of measuring current performance?
Dawn: Absolutely. We have to stop using savings as our sole barometer for measurement. Let’s look at an example:
The spend of an organization is $500 million; the cost avoidance from sourcing efforts at 12% comes to $60 million. Net profit margin is 7.5%. The equivalent revenue to generate the same value from sourcing efforts is $800 million (or $60 million divided by 7.5%)
The amount of energy required by the company to generate
$800 million in revenue is massive and clearly understood by all members of the
C-suite. Therefore, reporting results in terms of “equivalent revenue” instead
of “savings” positions the sourcing organization in a more impactful and
While you would assume that others will make this
calculation and realize this is the case, they don’t, or can’t make the analogy
to give us the credit we deserve. We must step up and change the dialogue to
get the respect we have earned.
(Read Dawn’s complete blog that talks about this issue
and a lot of others here)
Zycus: So the first focus of a procurement and sourcing
professional is getting the C-Suite to shift focus from savings to equivalent
revenue, what would you say would feature next in their “things to keep in
Dawn: Third party risks. Procurement and Sourcing professionals should be
particularly mindful about these threats and therefore should have a foresight
aided by technology that would mitigate the potential of loss. A take charge
approach towards risks is what the current environment demands. Procurement and
sourcing teams all over are responsible for managing goals and key relationships
for the organization. It becomes vital for them to work on these objectives
while taking into consideration the various risks they might be exposed to.
Strategical planning and readiness will help not only tackle these risks better
but also ensure the routine operations and performance doesn’t get disrupted.
Zycus: From what we’ve seen, these discussions seem much
underrated, what can organizations do to ingrain this line of thought across
make a valid point. However, that is changing. Organizations are becoming more
mindful that this change in mindset is long due, and they need to adapt. This
is why we’re seeing more and more people investing in education and
certifications, so they have the necessary skillset to tackle these changes better.
Zycus: Artificial Intelligence has created a lot of buzz.
How do you think that is changing procurement today.
is a breakthrough using Artificial Intelligence to manage risks in tail spend.
A lot of companies are still new to the idea of AI, but the use of AI will be a
Zycus: Gartner’ predicts, “By 2022, 75% of all B2B tail
spend goods will be purchased in an online marketplace.” Do you agree with
As legacy systems continue to phase out, it is only AI that can redeem
procurement an improved balance sheet.
Another aspect of change that people might miss out on is
accounting regulations changing concerning leases and procurement people need
to be aware of the changes and impact on their companies. While the
implementation of the new lease accounting guidance will fall within the
accounting department, procurement needs to be a part of this review to provide
its perspective on any proposed changes to agreements and to do the
Zycus: Moving forward, one thing that has always been a
concern is how procurement can have a facelift from being a more tactical
function to a strategic one. So what steps would you recommend teams take for
this significant makeover?
strategic mindset is crucial to this rebranding of procurement. This transition
is what will make other functions value procurement’s take on importing
sourcing decisions. For this procurement, professionals need to be all eyes on
various risks and opportunities. Professionals must be mindful of changing
technologies. They need to prepare for it with certification in third party
risk management and sourcing professional’s coursework.
Procurement and sourcing teams should consistently
measure their contribution to the enterprise. An excellent way to measure one’s
impact on to company’s strategic objectives would be to create a chart that
cascades from the top management down to the business units, and how at each
phase, the person has contributed to every success. On this note report from
the Hackett Group also states, “This is a unique time for procurement
organizations. Never before have companies been able to derive more competitive
advantage from superior procurement capability. The function’s role is shifting
from a sourcing gatekeeper to a provider of insight and decision support, made
possible by improved access to digital technologies, data, and advanced
analytics. World-class procurement organizations consistently get better
results with 29% fewer (but higher-paid) FTEs per billion dollars of spend.”
Zycus: One parameter to measure overall procurement
impact would be to track contribution in top-level business objectives, what do
you think could be other benchmarks procurement teams could use to measure
to, as proactive procurement practitioners, change how savings from procurement
is measured. “Equivalent revenue,” the term will not only consist of hard
dollar savings but elements like savings through cost avoidance. Anything that
impacts the bottom line and contributes to growth counts!
Another common and useful benchmark used to measure
performance is FTEs. The number of full-time equivalent employees (FTEs) needed
to perform a process, or a group of processes is one way to gauge process
efficiency. The fewer FTEs required to process purchases, the higher the
efficiency and the lower the overall cost of the procurement cycle. However,
consider only those who formally report into the procurement organization.
FTEs are employees who devote all or part of their jobs
to sourcing activities, and they should factor into the measurement. Meaning,
if a non-procurement employee spends a portion of his time to procurement or
sourcing activities, he or she is a partial FTE. Their effort will also
eventually add up to that of full-time employees.
Zycus: My last question to you is, what are three things procurement should start/stop doing this year?
first thing that Procurement professionals must stop is being transactional and
writing checks. The second to stop would be to keep talking about savings over
everything else, while the last one would be to learn to communicate in the
language of the CFO.
Our Conclusion from the interview
A seemingly strong inference that can be drawn from this
interaction is Procurement’s transition from a transactional to a strategic
function. This shift in approach has been a necessity for some time now;
statements from subject matter experts and veterans advising Procurement
professionals advising alignment of goals and their measurement, to learn the
language of a CFO instead of focusing on operational goals, go to show how
vital that shift is now.
If you feel like you’ve exhausted every avenue for finding cost savings, a Group Purchasing Organization could be the answer to your challenge.
There’s a gripping scene in the last chapters of Jules Verne’s Around the World in Eighty Days where the ever-dapper hero, Phileas Fogg, finds himself on a steamboat from New York to Ireland. Going full steam against hurricane winds, the vessel runs out of coal after a few days but Fogg, desperate to get to London in time to win a wager, buys the steamer from the captain and launches a desperate plan.
instructs the crew to feed the furnace with all the wooden parts of the ship –
the cabins, bunks, masts, rafts, spars were all burned, followed by the decking
itself in a “perfect rage for demolition”. By the time they reach Queenstown
the steamship has been reduced to an iron hull and an engine.
and supply management professionals on the never-ending hunt for cost savings
can face a similar situation. Through the identification of efficiencies,
negotiations with suppliers and more drastic cost-cutting initiatives, the
wooden decking of the steamship (your organization) can be rapidly stripped
away until suddenly you’re left with nothing but the hull.
an immature procurement function, it’s very easy for procurement professionals
to look good by posting impressive savings figures month after month. But as
your function matures and savings opportunities become harder to find, your
track record suddenly doesn’t look so hot.
to from here? Well, that’s where innovative thinking comes in. Finding further
savings after all of the obvious avenues have been exhausted takes creativity
and out-of-the-box solutions. If you do plan on going back to your supplier
base to negotiate lower prices, you’ll need to offer them something in return
for a better deal.
Volume, volume, volume
you’re in a situation where you need further costs savings, but your suppliers
genuinely cannot budge on price, there’s one sure-fire lever to reach for –
businesses end up paying more than they need to because they only spend a
modest amount in a particular category and will never unlock the power of bulk
discounts. But not every organization has the resources – or warehouse space –
to ramp up their purchase volume on their own. But what if there was a way to
get the discounts of “bulk” without having to buy more?
a Group Purchasing Organization (GPO) gives members access to savings you would
never be able to negotiate on your own. Your organization joins a group of
others buying the same thing, meaning you can leverage your collective purchase
and buy in bulk as a group to create buying
help businesses of all sizes save on indirect and direct spend. The savings are
found not just through bulk discounts, but through efficiencies (such as
cutting down on search time and issuing RFPs) and administrative cost savings.
buying decreases suppliers’ overheads, which drives further savings for the
purchasing organization. Imagine, for example, a cashier who takes five minutes
to process an order. 1000 single-item orders would require 5000 minutes of
labor, whereas a single order of 1000 items requires five minutes of labor.
Looking for some facts and figures?
get it – you’re a procurement pro, and procurement pros want to see hard
numbers rather than fluffy promises of savings. We can’t speak for every GPO
out there, but we can prove the value
of GPO membership with our own figures.
UNA is a GPO with a combined $100 billion in buying power.
We help procurement professionals:
Boost their bottom line with deep discounts we negotiate to save an
average of 22% on direct and indirect spend.
Gain access to steeply discounted agreements (better contracts) that
would typically be out of reach.
Unlock exclusive savings on products and services including 80% off
office supplies, 26% off hotels, 20% off parcel shipping, and more.
Save time through pre-negotiated contracts to get started with new
suppliers in 30 days or less.
Keep prices stable with agreements to ensure rates don’t increase.
We provide a free cost analysis
across your highest categories of spend and offer procurement tips and support.
but how much does GPO membership cost?
Every GPO is structured differently. Some
GPOs charge members a fee for their services, while other GPOs, like UNA,
are paid by the suppliers themselves. We, in turn, use that fee
to fund our program, so that it’s always free for our members.
with a GPO creates an advantage for the member that they couldn’t get on their
own. If you’re running out of cost savings ideas and want to unlock the buying
power driven by bulk pricing, a GPO could be the solution needed to keep your
steamship sailing along.
Interested in learning
more? Contact UNA to discuss the benefits of Group
What’s “shrinkflation”? It’s the practice of selling a smaller product at the same price, and it’s increasingly common in the chocolate industry. Procurious looks at three big stories about Chocolate supply management that have hit the news in the past week.
Regulation impacts complexity, complexity impacts costs, and costs impact the size of your chocolate bar.
Shrinkflation: Why Brexit means Cadbury chocolate bars will get smaller
It might be time to panic-buy your favourite Cadbury chocolate bars in bulk, because Cadbury UK’s parent company (Mondelez International) has warned that Brexit could lead to higher prices, or shrinkflation.
What’s shrinkflation? It’s the practice of selling smaller products for the same price. Mondelez has done this before, when its new-look Toblerone was revealed to have wider gaps between its iconic chocolate triangles, reducing the weight from 400g to 360g but selling at the same price. A pack of six Cadbury Creme Eggs – an Easter favourite – was also reduced to five eggs with only a slight decrease in the recommended retail price, from £3.05 to £2.85. The company has pointed to rising commodity costs, the falling value of the pound and an increase in cocoa prices, while Brexit is expected to make it increasingly costly to do business with other countries in the future.
Mondelez’s UK boss Glenn Caton told The Guardian that his organisation is watching the Brexit negotiations closely. “First of all [the Government] needs to make sure we have a stable and thriving U.K. economy,” Caton said. “If the economy is growing, all businesses benefit from that. Secondly, ensuring there is no new, more complex regulation and that there is free movement of goods and minimal barriers to trade. Regulation impacts complexity, complexity impacts costs, as do trade barriers and tariffs.”
Mondelez has invested more than £200m in Cadbury UK, including £75m on modernising manufacturing at Bournville in Birmingham, the home of the 193-year-old Cadbury brand. Bournville is also home to the global R&D team, which has grown from 25 to 250 people since Mondelez took over in July 2013.
Mars reinvests US$70 million in US supply chain while president warns of protectionism
Mars is re-shoring its manufacturing operation in a move that will mean over 95% of its chocolate products sold in the US are made domestically.
The investment of $70 million will add approximately 250 new jobs to production sites across the US, including a Mars Food factory in Greenville Missouri which will receive a $31 million injection. Last year, Mars poured US$52 million into its chocolate factory in Ontario, Canada.
The announcement was made on the same day that Mars Good President, Fiona Dawson, told the American Chambers of Commerce to the EU that protectionist trends worldwide are “threatening to undermine global trade and make the world less connected”.
“The absence of hard borders with all their attendant tariff, customs and non-tariff barriers allows for an integrated supply chain, which helps to keep costs down. The return of those barriers would create higher costs, threatening that supply chain and the jobs that come with it.
“If Britain ends up trading with the EU on the basis of WTO rules, ‘Most Favoured Nation’ rates would come into force. In the area of confectionery that alone would mean tariffs of around 30%.”
Prince Charles seeks to halt chocolate-industry deforestation
HRM Prince Charles, a keen environmentalist, convened a meeting with global cocoa and chocolate companies to target deforestation in the cocoa supply chain. Delegates from twelve major companies, including Hershey, Mars and Nestle, met with senior government representatives from two of the world’s leading cocoa-producing countries, Cote d’Ivoire and Ghana.
In his speech to the attendees, Prince Charles noted that aside from environmental damage, “The most powerful direct reason for action is that deforestation threatens to undermine the very resilience of the cocoa sector itself, and with it the livelihoods of the millions of smallholders who depend on it, due to the increased climate variability that follows forest loss.”
The meeting resulted in a Collective Statement of Intent to end deforestation and forest degradation in the cocoa supply chain.
That’s more than enough about chocolate. In other procurement news this week…
UK Grocery Chain Waitrose introduces trucks powered by rotten food
Waitrose has partnered with bio-fuel company CNG Fuels to place an order for 10 flatbed trucks that will be powered entirely by rotten food.
The fuel will be sourced from unsold food at supermarkets across the UK. Globally, an estimated one-third of all food, or 1.3 billion metric tons of produce – goes to waste every year.
The new biomethane trucks have an average range of nearly 500 miles, with the biofuel to cost 40% less than diesel fuel. The biomethane emits 70% less carbon dioxide than diesel.
Boeing’s VP Supply Chain nominated for US Deputy Secretary of Defence
The White House has nominated Boeing’s Patrick Shanahan as Deputy Secretary of Defence, with a view to tap Shanahan’s knowledge of the business side of military aircraft procurement.
In December, Trump rattled Boeing management with a Tweet complaining about the high cost of replacing the presidential plane (Air Force One) and threatening to cancel the program. Since then, the relationship between the White House and Boeing appears to have improved.
Under new ethics rules, Shanahan will be required to recuse himself from any Boeing-related procurement contract decision for the next two years.
Using reverse auctions opens up a wealth of benefits for procurement professionals. But it’s important to fully understand when and how to use them.
Reverse auctions have been around since the late 1990s, and have been regularly used as a tool by procurement professionals to obtain better pricing and lower supply costs. The use of reverse auctions can benefit companies of all sizes, but it really comes into its element when used by professionals within the procurement industry.
In an ordinary auction, buyers would compete with each other to obtain a product or service, yet in a reverse auction, the roles of the buyer and seller are reversed, and involve sellers competing to supply goods or services to a buyer. Over time, the price in the auction will start to decrease. Think of it like an eBay for the supply chain.
For procurement professionals who still haven’t started on the reverse auction or e-auction game, we’ve taken a look at how some of the finest procurement professionals use reverse auctions in their daily lives, and what benefits there are to using the service.
Time is of the Essence
When it comes to reverse auctions, as the supplier does most of the work, one of the greatest benefits is that the procurement professional can save time.
In the case of a traditional contract, businesses send out a request for a proposal which would have to be completed by the seller. The business would then sort through the proposals to make a qualified decision. The process of a reverse auction means that the whole process can be done online, cutting the requirements for manpower and time, with a decision being made much quicker.
Most reverse auctions won’t last longer than an hour either, meaning that the actual process can be wrapped up quicker, and both business and supplier can get on with what they do best.
Money can be Saved
Many companies these days are under economic pressure to become more streamlined and to reduce costs. In 2014, it was reported that the DLA, the U.S. Defense Logistics Agency, had found that by using reverse auctions they were able to save around $1.6 billion in a year – with $400 million coming from three auctions alone.
Whatever the size of your business, reverse auctions can be a great way of saving lots of money. Pitting suppliers directly against one another will mean that the lowest prices will be offered, and you be able to purchase services at a highly competitive price. Many companies will also tend to buy in bulk, meaning that even greater savings can be made to the bottom line.
The net will be opened up
Reverse auctions provide a great opportunity for smaller and lesser known businesses to get involved, and compete for something they may have otherwise never have had the opportunity to. Depending on the situation, the process can help to create new, long-lasting relationships between the business and the supplier.
In the past, companies may have felt limited to choosing suppliers local to their area. Nowadays, thanks to the growing reliance of technology, this is no longer a major issue. The net has been opened and allows businesses around the world to compete, which in turn allows both the buyer and supplier to network and build connections.
Reverse auctions are not for everyone
However, reverse auctions are not for everyone. It’s important that procurement professionals are able to determine when it’s right to use the service.
As it is a service that is mostly fixated on providing the lowest price, it can be hard to determine the level of quality or service that will come with that low price. In many cases, the lowest bidder may not necessarily be able to provide the highest of quality, and this can end up having a knock on effect on other aspects of the business.
To tackle this issue head on, Market Dojo believes you should use price as a stepping stone only, and not a set rule. Obviously, you want to be able to pay as little as possible, but if you factor in levels of quality and the reputation of the seller, then you are more likely to make a better buying decision.
Ultimately, reverse auctions are a great tool for the procurement professional in today’s technology-focused climate. The buyer can spend less resources on purchasing decisions, whilst new suppliers can take part in sales that they wouldn’t otherwise.
To be effective at buying goods through the reverse auction medium, those in the procurement industry need to remain vigilant and try not to focus entirely on price. High quality goods and delivery times also need to be factored in order to make the process efficient and cost-effective. Otherwise, you may just end up paying out more.
About the Author: Adam Maidment is a Content Writer for Portfolio Procurement, specialists in the recruitment of experienced procurement professionals throughout the UK.
How would you define perfect procurement? We’ve spoken a great deal recently about how saving money or getting the best deal is no longer the be all and end all in procurement.
Customers demand and expect a more transparent, more ethical, and more sustainable supply chain. This ultimately means that procurement priorities vary globally, and across companies. This week, however, we are singing the praises of some perfect procurement strategising which has led to some serious savings.
The Aircraft Carrier Alliance announced savings of $139 dollars on the UK’s two new aircraft carriers, South Africa plans to reform public procurement to save R25 billion, and Australia’s fifteen-year-long infrastructure plan aims to to save the average Australian household $3,000 a year by 2040.
And, under the pressure of a slow economy, sources have suggested that Russia plans to cut defence procurement by 5 per cent this year.
The Aircraft Carrier Alliance
The Aircraft carrier Alliance (ACA) have just announced savings of £139 million on the construction of two new aircraft carriers at the CIPS Supply Management ‘Best in Procurement‘ event in Manchester. Having initially been tasked with saving £86 million, the ACA significantly exceeded this thanks to their implementation of an effective procurement programme with PwC.
PwC supported a savings delivery team using their procurement cost savings methodology following a five week assessment phase and prioritising of opportunities to cut costs. Currently, savings have come from 67 areas but there are still three years to go on the project.
Ross Elliott, director at PwC said “We had a very robust process, but you have got to take your shareholders with you. As a result [of this project], we have got an organisation that looks for savings and is more cost aware.”
The South African Government is holding talks with suppliers, with the hope of reducing prices and renegotiating contracts for banking services, ICT infrastructure, health technology and learner support materials.
The reforms to public purchasing processes should save the Government R25 billion, out of an annual procurement spend of R500 billion.
South African Minister of Finance, Pravin Gordhan, stated, “It is clear that we can achieve considerable savings to the government, while also ensuring that procurement processes are streamlined and service providers are paid on time.”
A report from Infrastructure Australia has detailed a number of reforms to infrastructure to be undertaken by 2040. Among the procurement responsibilities is a suggested increase in competitive tendering.
The report cites how Sweden has increased competitive tendering in public procurement, leading to lower subsidies and 20 per cent cost savings, and calls for the same approach in Australia.
Throughout the plan, whole-of-life costs will be accounted for in procurement when new infrastructure projects are commissioned, including future maintenance costs as well as initial capital expenditure. It is estimated that the plan will save the average Australian household AUD $3,000 by 2040.
Defence Procurement Cuts in Russia
Sources have suggested that the Russian government might be pushed to make a 5 per centcut in defence procurement spending this year. Despite President Vladimir Putin making military growth a national priority, it seems that the slowing economy could put a halt to his plans.
Russia has entered into its second year of recession as oil prices continue to decline. Four official sources have said that the cut proposals are to be put forward for discussion at a cabinet meeting.
The finance ministry have argued that Russia can no longer afford a multi-billion-dollar revamp of the armed forces, so will consider the realisation of this plan to be a significant victory.
In today’s current climate saving money is definitely the aim of the game. Perfect procurement might not be possible all the time. But, as proven by this week’s news, a methodical and meticulous procurement plan can make all the difference and ensure money is saved in the right places without compromising quality or ethics.
We’ve scoured the net to keep you updated with some more top procurement news stories from the past week.
Procurement Plans at the zoo
Hyderabad zoo animals are soon to find new partners thanks to the biggest procurement plan the state has ever seen.
The Central Zoo Authority accepted proposals put forward by the state forest department which permits animal exchange as well as procurement of them.
The Nehru Zoological Park (NZP) will soon be procuring a whole host of new animals to complement its existing residents including a pair of barking deer, an Otter, a hyena and an Indian wolf.
The NZP’S assistant director said “With the upcoming exchange and procurement, most of the single animals will be complemented with partners.”
Same-day delivery startup Deliv Inc. is getting a funding boost from an unlikely source: United Parcel Service Inc.
As more and more commerce moves online, retailers must match the next-day and even same-day delivery speeds made commonplace by Amazon.
Surveys indicate that just by having the option of same-day delivery increases purchase conversion during the checkout process by 20-30 per cent.
Deliv, which offers enterprise-grade integrations into point of sale, has completed a $28 million Series B round of funding, adding a key strategic partner and investor in UPS. The company looks set to be the platform that powers this new on-demand future.
Procure Plus has been awarded a five-year contract to help ex-offenders access employment and training.
The not-for-profit organisation, which buys goods and services for several housing associations in the North West of England, will place 24 ex-offenders into employment, apprenticeships or training with contractors in its supply chain every year.
Ann-Marie English, senior regeneration manager at Procure Plus, said: “What’s different about our approach [to helping ex-offenders] is a focus on the long term, via sustained career opportunities and support.”