Tag Archives: procurement process

Tenders are the Worst Form of Procurement

Tenders may be the traditional form of procurement, but it’s time they were consigned to the dustbin of the past.

This article was originally published on LinkedIn by Austin Harrison.

“Procurement by tender is the worst form of procurement, except for all the others”

Winston Churchill, British politician, army officer, and writer, 1874-1965

Actually, Winston Churchill never said that, but if he’d been a Bid Manager I reckon he totally would have.

Procurement by tender is, by and large, a solution to a whole lot of problems that ought not to exist. Nepotism, backhanding, bribery and intimidation – those old-school gangster favourites – are obnoxious and illegal and commercially inadvisable, and picking with a pin is a terrible way to get an optimal result. I fully accept that tendering is as about as fair and sensible a method of procurement as I’ve come across.

Then again, if aliens landed and were introduced to the concept of tendering, they might wonder why we’ve created an entire sub-industry devoted to a single method of acquisition that doesn’t always get the right result for the purchaser and doesn’t always guarantee a sale for the best vendor.

Tenders – A Hugely Expensive Lack of Control

As someone who supports sales for a living, the issue I have, if one accepts I’m not a gangster, is that tendering is hugely expensive, and doesn’t quite work like it says on the tin. Purchasing, even of large, complex and multi-component tangibles, as well as intangible stuff like ideas and values, works a bit better for both parties if it’s treated more like old-fashioned shopping.

The buyer needs to try it on, to prod and poke and feel the width, and the vendor needs to suggest politely that while tangerine sequins are a bit last season, this one here is timeless and elegant and 20 per cent off.

A glaring anomaly, for me at least, is that as soon as an invitation to tender is issued, both sides lose a significant element of control. From the sales side, there might have been months or years of locating, learning about, and leading a prospect towards a solution that meets and exceeds needs that have been properly and professionally identified.

An RFx is issued, and suddenly any such headway can be diminished or completely negated. For the purchaser, they give up the tactile, lived experience of shopping and replace it with acquisition by form-filling at arms-length.

And if we’re being brutally honest, both the form and the response can be poorly designed and quite a long way from what is wanted or what is actually delivered.

Re-channelling some of the blood, toil, tears and sweat

While the tendering thing fills up my time quite satisfactorily, I’d prefer to expend a little more effort on winning business, and a little less on just joining in. Tenders are unlikely ever to disappear (and nor should they), but that doesn’t stop me from exploring any alternative approaches.

I’m lucky that the field I work in is flexible to some extent in respect of the sales process. It’s been possible for my team, in collaboration with others, to provision my sales colleagues with written collateral that is designed to preempt, or at least influence (in a non-gangster way) procurement by tender. I believe we’ve had some success with the following:

A Buyers’ Guide to Tenders

More of an infomercial than an advert, this encourages a prospect to ask questions of prospective suppliers. They are, of course, the kind of questions that my company would enjoy answering, and our logo and testimonials are prominent, but for those prospects who are in the early stages of procurement, I believe it’s actually a really useful item

The Case for a New [insert your offering here]

A more substantial justification for change, and how to go about it (define why you’re shopping, don’t let the wrong people make the decision, focus on advantages rather than risk, examine the risk of not changing, etc.). Includes plenty of stories of successful procurement (of my company’s products, but then those are the only stories to which we have access…)

How to write a Request for Proposal

If we have to go down the RFP path, it’s great to receive something that we can respond to properly. You may be surprised, but this isn’t a shameless spruiking for my company’s products. Rather it highlights sensible things to ask, and how best to encourage an honest and comprehensive response (e.g.; a spreadsheet with 500 or 1,000 closed questions might actually deliver less information than 50 broad questions that can be completed as the respondent sees fit, kind of thing) 

A Host of One-Pagers

A host of documents, from one-pagers upwards, that serve to address questions from prospects that repeatedly crop up during the sales process. For my line of work, these include collections of case studies focused on a particular market sector (who else like me has your products?), outlines of change management and ongoing support services, descriptions and examples of opportunities for return on investment, explanations of solution architecture and overarching compliance, etc., etc.

While it seems that these documents have had some impact, it’s difficult to measure precisely how much. Certainly, we’ve received RFPs based on our suggestions, but often we’re not sure if a particular document reassured or persuaded a particular prospect sufficiently for a them to sign the contract.

That said, I take the view that my job is to support the salesfolk, and if they consider this sort of thing helpful, that, for me, is a decent result.

Do you do anything to anticipate or guide procurement by tenders, and move forward into broad, sunlit uplands? What are your experiences here? Always keen to learn more….

Guide to Writing a Supply Management Plan

Though it may seem like a daunting task initially, writing a solid supply management plan for your organisation will really set you up for success.

From Startup Stock Photos on Pexels

This is the second part in a series. Read the first on ‘Writing a Brief for the Procurement of Goods and Services’ here.

Supply management is one of the key components of a successful business regardless of its niche or service portfolio. Once you find a suitable supplier or B2B partner with the items or services you need to remain operational at peak capacity, you will want to ensure that a supply management plan is in effect.

However, drafting such a document takes effort and panache for small details due to legalities and mutual obligations that will require careful listing and formatting. According to Finances Online, 57 per cent of companies believe that adequate supply management gives them a competitive edge that enables further business development. 62 per cent report limited visibility in terms of being informed about their supply chain status at any given moment.

This creates an incentive for companies to create a supply management plan which can easily be retrofitted for different applications and allow them to stay informed about their inventory at all times. Let’s take a look at how you can benefit from supply management plan writing and the steps necessary for its successful drafting and approval by all parties included.

Basics and Benefits of Supply Management Plans

It’s worth noting what supply management planning is all about before we jump into writing guidelines and plan outlining. Supply Management Planning is a forward-thinking process that involves coordination aimed at optimising the delivery of goods or services from a supplier to a customer.

Its main focus is to balance the supply and demand through inventory planning, production scheduling, and delivery organisation. Writing a supply management plan for your business’ needs will allow you to streamline product delivery and quicken the general turnaround time of your contracts due to the standardisation of written documentation.

Relying on writing tools such as Grammarly (a dedicated proofreading tool), Studicus (a professional outsourcing platform), Evernote (a cloud-based text editing service), as well as Grab My Essay (a document writing platform) will help you get the documents shipped to clients and contractors with impeccable speed and quality. While these documents are not special and show up quite frequently in companies that rely on shipping or ordering of goods and services, their standardisation will bring about several benefits to your business, including the following:

  • Better stakeholder cooperation and networking
  • Improved supply management efficiency
  • Lowered risk of delays and bottlenecks
  • Increased profit margin and ROI

Supply Management Plan Writing Guidelines

Supply Management Plan Overview

The first thing worth noting is that a supply management plan isn’t bound by length or complexity – it all depends on your contract’s requirements. Supply management plans are typically assigned for a fixed duration of time, be it several weeks or years in advance, thus allowing two parties to manage the supply line between them. In that regard, the first page of your plan should focus on an introductory segment that will outline the supply management document in its entirety.

Elements such as the name of your recipient (company name, representative name, address, etc.) as well as products or services outline (product category, number of items, estimated value, etc.) should find their way into the plan overview. This will allow the reader to quickly scan the document and become acquainted with your requirements without going through several pages of the supply management plan.

Supply Procurement Policies Outline

Every organisation, be it focused on physical goods or cloud-based services, features certain procurement policies. It is pivotal for your business’ reputation and longevity of your contracts to outline any special requests or policies you have in advance for the sake of transparency.

In this segment, it’s good to include information pertaining to your storage capacities, safety regulations and procurement facilities you have access to. This will ensure that your recipient is aware of the environment in which their goods will be stored and to better prepare their shipments in case of special climate or infrastructure requirements on your part.

Detail the Quality Assurance Systems

No matter how good your relation with a certain supplier may be, you should still rely on objective QA systems when it comes to supply risk management. The plan you write and send out as a procurement document should include a breakdown of your QA systems, as well as any regulations it covers based on health and safety hazard standards.

This is especially important when shipping medical equipment, chemical compounds and other hazardous materials that can cause severe human danger if mismanaged or stored inadequately. Most importantly, outline your specific guidelines in case of procurement contamination or product failure on the shipment’s arrival into your facilities to cover all grounds.

List International/State Laws

Chances are that you will sometimes work with international suppliers and companies that don’t share your governmental or legal jurisdiction. When that happens, you should ensure that international and state laws pertaining to your industry are listed on the supply management plan with follow up links or documents.

If you work with suppliers which don’t speak your language, you can refer to platforms such as Is Accurate, which is a translation review website, in order to ensure that your writing is understandable due to its importance. It’s also good practice to requisition legal documents and shipping approvals from the supplier for your own border and customs checks and their timely processing.

Outline your Supply Selection

You should follow up on your initial product or service procurement outline from the opening segment of the supply management plan with a detailed breakdown of your requisition. One of the easiest ways to do so is to create a simple table with clearly outlined product categories, product names, procurement numbers, as well as any special requests you may have, such as limited-time-only procurements.

This will allow your supplier to process the order quickly and to clearly understand which items you will require for the duration of your contract. Make sure to include a quick contact information line in this section to allow for follow-ups in case of unclear requirements or a lack of products on your supplier’s side.

Detail the Distribution Timeline

Lastly, supply management plans should come with a detailed breakdown of the distribution timeline pertaining to the previously outlined order. Do you require the items to be shipped to numerous different retail fronts across the country – if so, in what order and quantity? Will you handle a part or the entirety of the shipping procedure and only require the supplier to prepare your items for pickup?

Do you require any safety or manpower assistance with handling the supply going forward or do you have sufficient capacities to do both? These items should be added to the distribution section alongside a rudimentary contract timeline that will allow the supplier to quickly scan through their obligations toward your business.

Not as Daunting as it Seems

Writing a supply management plan for your company may seem like a daunting task at first. However, it is a pivotal step toward creating a reliable and professional supply management network.

Find ways to implement the above-discussed supply management plan guidelines in your own business practice and contractual obligations. Their inclusion in your supply documentation will help your business’ ongoing growth and stability on the market going forward.

The Time Paradox of Contract Management

When you’re busy it’s easy to let things slide and ignore contract management in the procurement process. But the idea that you’re saving yourself time by doing so is a paradox we would be well-served dismissing.

By andrey_l /Shutterstock

You’ve taken your time meticulously following the procurement process from inception of the idea through to contract award. You’ve spent all the time you needed getting your ESPD right and crafting some good contract documents to get the necessary competition and achieve best value. Your contract award reports have been signed off and you’ve even managed to fit in time for a lessons learned document.

But you’ve got another tender sitting waiting to be evaluated. And another that needs sign off from the stakeholders before you can publish. Not to mention that phone call you’ve just taken or email you’ve read assigning you a new project or asking for your input.

So you think to yourself, “It’s ok, I’ll arrange the mobilisation meeting and then the Operations side of the business can take it from there. After all, it’s an easy contract – it’ll take care of itself…”.

Stop. No really, stop. Why, after putting all the hard yards in to begin with, would you then choose to step back at such a critical juncture? Are you sure that without your input, all those savings and benefits you agreed with the supplier will be delivered? And can you prove you are getting what you asked for?

Out of Sight, Out of Mind

Let’s take a step back from this and stop blaming ourselves as individuals. Time is not on procurement’s side (as I have said in the past) and there’s not always time to perform all the necessary tasks as part of the procurement process. When push comes to shove and there are tenders to be published, one of the first things to get dropped, alongside training and development, is frequently contract management.

Why? That’s a hard one to answer. In many public sector organisations, the issue comes down to an unholy trinity of reasons.

  1. A lack of resources in procurement departments, be that head count, budget, or similar;
  2. A lack of time, which has been covered extensively in the past; and
  3. A high churn of tenders, meaning that getting the contract signed has become the priority.

Unfortunately, the reality is that the public sector is falling victim to the paradox of contract management. It might be felt that there isn’t sufficient time to manage contracts effectively, but without a procurement focus, how are organisations going to realise savings offered by and agreed with suppliers.

In some cases, from personal experience, procurement isn’t even charged with the on-going contract management. In many organisations, both in the public and the private sectors, once procurement has put the contract in place, it’s passed to contract managers or end users for its duration.

Not Rising to the Challenge

Look for the importance of contract management and you don’t have to go far to see why and where it drives success. In the past 12 months there have been stark examples of where contract management has fallen down to disastrous and altogether spectacular effect.

The collapse of Carillion and the endless budget overruns of HS2 are just two examples. A bit further in the past, the National Programme for IT for the NHS, which cost £6 billion more than it should have and has, to date, only delivered a third of the predicted benefits, is another.

However, on the flip side of that there are examples of where good contract management has made a tangible (and quantifiable) difference in public sector projects. The new Queensferry Crossing over the Firth of Forth actually came in £100 million cheaper than initial estimates suggested, with credit being given to the overall management of the project.

The NHS Wales Informatics Service project has set up digital systems to aid patients with prescriptions and staff with communication, aimed at creating greater efficiencies across the strained health sector.

And if you’re unsure about procurement’s involvement in these projects, both have been nominated as regional winners for national awards at the GO Awards, which recognises best practice in public sector procurement across the UK.

Getting Mavericks Out of the Danger Zone

Let me start this section by contradicting much of what I have written before. Procurement needs to actively take on contract management, irrespective of the time commitment. And not only this, but it needs to be a priority on the same level as market analysis and tendering. As has been shown with the example above, good contract management can deliver savings and value, but it also extends beyond this too.

Improved compliance, standardising processes and procedures, spend and performance analysis and spend visibility are all key benefits. On top of this, it can help reduce maverick spend (a procurement favourite!) by taking away a route to using a non-contract supplier, or non-contract items.

And, as a final benefit, it’ll help you save time when it comes to retendering, extending or renewing contracts for existing services, as you’ll know far enough in advance to do the full procurement process properly. Not so much spend (money) to save (money), but more spend (time) to save (time). And maybe we can clear up a couple of paradoxes on the way!

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!

Removing Obstacles to Competitiveness with CLM

Do you view CLM as an automated filing cabinet? You’re completely missing the point!

When you think about why a company would invest in a contract lifecycle management (CLM) solution, the first things that come to mind might include improved governance and agreement administration. But is that it? If the ROI of CLM is limited to better dotted I’s and more neatly crossed T’s, the effort to select and implement a solution hardly seems worth it.

Companies that view CLM as an automated filing cabinet are completely missing the point. They may even be at risk of having a constrained strategic vision for the future and for the place they want to hold in the market.

In order to create and defend a competitive advantage, a company must lean forward with every process, through every employee, and via every system they implement. There is no reason to do anything if it does not breakdown silos, overcome barriers and make them more competitive in some way, and contract management is no exception. CLM must eliminate obstacles to competitiveness and be as strategic as the company’s approaches to market segmentation and lead generation.

Competitiveness Requires Constant, Active Refinement

Even though the world is moving faster than ever before, contracts are still put in place for multiple years at a time. The chances of conditions being the same in the second or third year of a multi-year contract as they were during the bidding process are slim to none. As a result, companies – led by their procurement function – should expect to modify the contracts that govern supplier relationships. This is especially true for an actively engaged team that wants to drive maximum value through their contracts. CLM not only makes it easier to amend an agreement, it tracks the changes – even if there are hundreds of them – and makes clear which set of terms and conditions is the most current.

Are You Getting What You Contracted For?

There are two ways of looking at supplier obligation management. The first involves whether or not the company receives the goods, services, delivery, and outcomes outlined in the contract each time they make a purchase against the contract. The other is a bit more complex, and it forces procurement to look at demand management in a nonconventional way. Just like a world class athlete, a competitive organization has to be supplied with the appropriate fuel. If procurement estimated a certain level of demand by a predetermined point in the contract and actual purchases are falling short, there is a very good chance that other performance benchmarks will be missed as well. CLM can ensure that consumption is proceeding as planned, and if it isn’t, the system can alert procurement. Procurement’s insight becomes a leading indicator of potential performance – one that the executive team won’t want to be without.

Sleep with One Eye Open

In order to secure or defend a competitive advantage, procurement may be supporting decisions to take risks rather than just monitoring external risk from afar. If a company is going to engage in strategic risk taking, they must be able to constantly audit and review reports to ensure that performance benchmarks are achieved and compliance is maintained. This becomes even more important if procurement is taking advantage of appropriate opportunities to refine and amend the contract.

It is unrealistic to expect anyone working in a fast-paced environment to remember the latest terms and conditions; instead, CLM should bear the weight (and proactively report on) key contract data.

Results matter above all else in a competitive enterprise. Leading companies are harnessing the capabilities of CLM to navigate (and eliminate) uncertainty and enable maximum performance at all times. If your company is looking to become more competitive, you’ll need to be prepared to do the same – an increase in performance that is not possible without leveraging the full capabilities of your supply base through contract management.

This article was originally written for Determine By Kelly Barner.

The ‘Why’ Behind the Drive for Retail Process Efficiency

Process efficiency is good. In fact, it’s one of the most frequently cited objectives for the procurement profession. But it can’t have a real impact unless we understand the bigger picture…

As we expand the impact of procurement beyond savings, one of the most frequently cited objectives is process efficiency. In theory, if procurement can help the company execute internal processes more swiftly they can… something, something, something (?). Process efficiency is good, and savings are good. But neither will have any real impact if we don’t understand why we are driving them.

The retail industry is a perfect case example for the need to understand the big picture impact of process efficiency. When you work for a B2C company, customer satisfaction is the answer to every question. In retail, the benefit of every project must be traceable all the way to the store.

The wholesale goal of retail: customer experience and satisfaction

Sourcing project teams usually sit down and articulate their goals and objectives at the outset of the process. Too often they are focused on the impact of the product or service on the company and its employees when they should trace that efficiency forward to the value it creates for customers. This perspective provides the context for many of the decisions made during the sourcing process:

Why should office supplies need to be easier to order? 

So marketing doesn’t have to interrupt their work on the new ad that will drive shoppers’ grocery lists this week.

Why are we going through a lengthy equipment testing process?

To prevent customers from being inconvenienced at the deli while we repair the slicers (again).

Which supplier should we award the fixtures and millwork contract to?

The one whose product best evokes a farmer’s market, ultimately increasing produce sales.

In a retail environment, one of the most dangerous lines procurement can draw is between direct and indirect spend. This division is practical enough, especially for categorisation purposes, but it creates the impression that indirect spend matters less than direct spend does. Even indirect spend must create value for the end customer. Every dollar the organization spends – whether it is an investment in inventory or to buy copy paper for headquarters – should efficiently advance the interests of the customer. That is what defines valuable process efficiency in retail.

Placing a value on retail intangibles

Case in point: Kemper Freeman is the owner of Bellevue Square, a multilevel mall in Seattle, Washington. He is a bricks and mortar king in an increasingly digital commerce world. Despite the lacklustre performance of retail chains like Macys, J. Crew, Sears, Charming Charlie, and J.C. Penney, his business is booming. He characterizes his approach to customer attraction as “emotional fulfilment”, and it is something eCommerce businesses can’t compete with.

As was recently explained in a Wall Street Journal article about Freeman, emotional fulfilment is “the joy customers take in seeing, touching, sniffing and testing the product before they pull out the credit card.” For a retail business to be driven by the creation of emotional fulfilment, every employee – from store clerks to corporate procurement to janitorial staff – has to buy in and place the customer at the centre of every effort they make.

Given this context, what does process efficiency mean in retail?

Procurement-enabled retail process efficiency removes barriers between demand and supply so that value can be created for customers. Process efficiency is not getting to the end of a sourcing project faster and it is not about making corporate roles easier. Efficiency ensures that the flow of products and services are not interrupted, and they certainly don’t take customer-facing roles away from their primary focus. Even in procurement, the customer should remain the central focus, and the goals for every project should be tied to a barrier removed or a benefit advanced. These are the only efficiency gains that matter.

This blog was orginally written for Determine by Kelly Barner .

How To Solve The Extended Payment Term Problem

Extended payment terms can be a huge burden for buyers and suppliers. Not to mention the negative press. But there is a solution at hand.

In response to the financial recession of 2008, many supply chain and procurement departments began pushing their suppliers for extended payment terms as a means to improve cash flow and limit the need to acquire credit, which was in short supply.

While the recession has long since past, the practice is still very much in use today. In fact, major companies such as AB InBev, Kellogg, Diageo, and Mars commonly establish payment terms that extend anywhere from 90 to 120 days. Additionally, a 2016 study revealed that buying teams are planning to extend their payment terms even further.

This push for extended payment terms makes sense for buyers. Extra cash in the coffers can be used to fund R&D, buy back stock, and invest in strategic initiatives. It also never hurts to have more free cash as working capital.

However, while buyers benefit greatly from extended payment arrangements, they can pose a tremendous burden to suppliers – especially small- to medium-sized businesses (SMBs).

How Extended Payment Terms Hurt Suppliers (And Buyers)

Extended payment terms can be detrimental to suppliers for a variety of reasons, including:

1. Curbed Productivity

Many SMB suppliers have limited resources in terms of manpower and production capability. As a result, they can only take on so many projects and contracts at a time before reaching capacity.

When funds are tied up waiting for cash to come in, these companies are precluded from investing in new equipment, replenishing stock or adding to their workforces. This brings the company to a standstill, and could put it out of business altogether.

2. Lack of Financial Flexibility

While large corporations and buying teams have the purchasing power to demand extended payment terms, smaller suppliers do not.

As a result, these suppliers are forced to receive payments late while paying their own suppliers early. This creates a cash flow crunch in working capital that many can’t escape.

In fact, most firms operate on a month-to-month basis with cash reserves built to last only 27 days.  

3. Lower Employee Morale

In addition to the financial consequences of extending payment terms, the practice takes a human toll as well. Going three-to-four months without receiving payments from buyers makes it difficult for businesses to make their own payroll – usually the largest expense for a SMB.

As a result, small suppliers suffer from reduced morale and engagement. This can, in turn, lead to a decline in quality and production delays.

4. Limited Credit Options

With limited cash on hand, the only financial lifeline available to many SMBs is to apply for more credit. However, 50% of small businesses receive no money at all when they apply for credit loans.

SMB Credit
Source: Federal Reserve Banks of New York, Atlanta, Cleveland and Philadelphia

Extended Payment Terms Can Hurt Buyers, Too

In the end, buyers end up paying the price for extended payment terms as well. That’s because it introduces risk into their supply chains. If a trusted supplier is forced out of business or suffers a decline in productivity, it hurts the procuring organisation.

In addition, suppliers have long memories. Many will compensate for extended payment terms with higher costs, while others include steep late-payment penalties in their contracts.

Lastly, a high quality supplier whose products or services are in-demand supplier may simply choose to work with other companies that offer friendlier payment terms, and forego bidding new opportunities that come with onerous payment terms.

Reverse Factoring May Be The Solution

Reverse factoring allows a buying organisation to leverage its strong credit rating to acquire favourable financing, which is used to pay suppliers in a more timely manner.

Here’s how it works:

  • Supplier submits the invoice to the buyer.
  • Buyer approves the invoice and submits it to a 3rd party financial institution or factor, who bases interest terms on creditworthiness of the buyer.
  • Financial institution pays the supplier at their desired early term of net 30 days, discounting the invoice payment by the agreed-to discount rate.
  • Buyer pays the financial institution the face value of the invoice at their agreed-upon date, say net 90 or net 120 days.

The concept is fairly new, but it is already proving to be a great solution for buyers that want to reap the cash flow benefits of extended payment terms without putting their suppliers in jeopardy.

That’s because it is beneficial to every participant in the process. It allows both buyers and suppliers maintain cash flow while forging positive working relationships in the supply chain. The financial institution also benefits by generating a return on the funds lent to the supplier and reimbursed by the buyer’s payment.

Offering friendlier payment terms is just one way to build stronger relationships with suppliers. Discover more on how to improve your relationships with SMBs in our latest tip sheet.

Ed Edwards is Audience Outreach Manager at THOMASNET.com. He leverages his extensive experiences in engineering, manufacturing and procurement, to educate procurement and engineering professionals on how to streamline and improve their work.

Ed provides customised training to organisations’ engineering and sourcing teams and helps buyers with their challenges and finds them new opportunities.

How Procurement Can Support SMEs in Tendering

SMEs can provide formidable USPs to procurement. But procurement first needs to take steps to support them in the tender process.

99 per cent of all businesses within the UK are small and medium enterprises (SMEs) – those companies which are made up of 250 employees or less.

At the end of 2015, the total number of companies this size in the UK stood at 5.4 million.

Recently, within public sector procurement, there has been a noticeable increase in the number of contracts awarded to SMEs. Given that SMEs have long since made up the majority figure of all businesses within the UK, it is interesting to see that only now are they being brought to the forefront of the bid and tender process.

Wave of Change

A recent study has shown that nearly three quarters of public sector procurement contracts have been awarded to smaller organisations. This is in contrast to a few years ago, where just over half of contracts were awarded to SMEs.

Historically, larger businesses have been able to gain competitive advantage on SMEs in the contract bidding wars. They have been able to provide extensive financial data, as well as time and money, to work through the complex tender processes.

However, the wave of change has arrived. Public sector organisations are helping make that tender process a lot easier in a bid to support local businesses. With less red tape, SMEs are able to provide an enhanced USP to procurement. This includes access to local products/services, innovation, ethical trading and overall a more competitive offering.

Simplifying the Procurement Process

Leading the way, some organisations have already begun by standardising tender documentation. They require less financial information about the company, and are setting up electronic portals to help make the process as efficient as possible.

All of this is in aid of simplifying that bid process for SMEs to encourage them to apply and succeed in winning contracts.

For procurement professionals, this simplification of the tender process not only supports local SMEs, but also helps to cut out inefficiencies in day-to-day procurement jobs.

When it comes to reviewing bids now, procure have less financial data to wade through, and a more comprehensive tender document to look over. Plus, taking advantage of technology is also helping save time and money.

Procurement Heads is all about getting to know great Procurement people and recruiting Senior Procurement professionals.

Procurement Heads understands the value of working in partnership, both in helping people develop their careers and in supporting organisations to build world-class teams.

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.

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.

Are Charities & Non-Profit Organisations Getting the Most from Procurement?

We’ve all donated to charities at some point, but do we know where our donation is being spent? How effectively are third sector organisations able to leverage their procurement?

This article was originally written for, and published on, Novo-K.

A bucket in the street. A bake sale or coffee morning. A fun run. A phone call. We’ve all donated to charity at some point in our lives, and we frequently put our money down without thinking about where it goes to. But do you know how your donation is being spent?

With an ever-increasing number of charities in existence around the world, organisations need to be seen to be spending money wisely, or else donors could take their money elsewhere.

It’s not something that immediately springs to mind when you make a charitable donation, but charities and not-for-profit organisations rely on procurement teams in the same way as the public and private sectors. And the role that procurement plays for them is just as valuable.

Procurement Complexity

Despite my experience working in procurement, and the countless conversations I have had with procurement professionals, I will admit to a lack of extensive knowledge on procurement in the third sector. I had also (mistakenly) thought that procurement might be less complex than in other industries such as manufacturing.

However, following some conversations, and giving the subject more consideration, it’s clear that there is just as much complexity as in any other organisation. It’s not just indirect procurement activities as people might think.

In many cases charitable organisations are looking at procurement of a range of services, highly complex machinery, chemicals and drugs, and even construction services for new buildings.

Fighting the Same Battles

I asked the Procurious community whether they thought that got the most from their procurement activities. What struck me was that these organisations face the same issues the wider procurement community, one in particular being maverick spending.

In charitable and non-profit organisations, as with procurement across the world, there is still the need to convince business stakeholders, end users and other functions of the value procurement brings to the organisations.

Traditional mind-sets of, “But we’ve always done it that way”, and “We’ve used that supplier for years”, exist in these organisations. You might think that convincing stakeholders might be easier for a charity – more procurement involvement means better deals, means more money to go on research or helping people.

Effective Procurement

All of this brings me back round to my original question. In truth, as a donor, I don’t really mind what my money is spent on, just that it is being used to support the charity’s cause. As a procurement professional, however, I feel that there is more that could be done to make this more transparent, and also to support these organisations when procurement is less mature or experienced.

There are a number of ways that procurement in charitable and non-profit organisations can be supported. In the UK, the Charities Aid Foundation provides various services on a pooled basis for smaller charities.

There are also opportunities for procurement professionals to work with charities and social enterprises on a pro bono basis. This is a great way for the organisations to access procurement skills, without having to pay for a full-time staff member.

Another option is to expand our procurement networks, getting as many people involved as possible. By creating global networks, procurement professionals can access a wide range of knowledge and experience.

If you have a procurement issue, the chances are high that someone else has dealt with it before. By creating networks, we can help create real value.

All this can help to raise the profile of procurement within charities, educate stakeholders to procurement’s role and value, and make a major difference to how (and how effectively) money is being used.

How Top Procurement Professionals Conduct Reverse Auctions

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.

Finally…

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.