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Just how much can UK plc save on procurement?
Published February 9, 2011 | The National Audit Office has suggested that the NHS in the UK could save in excess of £500m through more effective procurement.
This raises a very interesting question – if the NHS can do this, what can UK plc do as a whole?
There is so much duplication and ineffective processes across procurement that I estimate that the total figure could be many multiples of this. There is talk today of small schools synthesising – i.e. working together and sharing services. As far as I’m concerned this is a no brainer and should be considered a given rather than an option.
Let’s concentrate on the front line services, let’s concentrate on our core competence, let’s concentrate on freeing up adminstrative duties to concentrate on client/ customer delivery. If we can collectively develop this philosophy and actively look for efficiency opprtunities rather than being protective of position/ role, then this country will quickly get back on its feet.
The way to drive real savings across procurement is not to hit the suppliers on the head for a couple of percent off this and a few pounds off that, it’s about looking strategically at how best to structure the whole process.
Where things need to be centralised, centralise them. Where there is a need for local decisions, then retain the responsibility local. However, let’s not fudge it.
Take the hard decisions now and we can look forward to building a better future for all.
Tony Lockwood, Chief Executive, xynergie
The case for procurement outsourcing
Published February 8, 2011 | Procurement outsourcing is a hot issue with large businesses in the current financial environment. Procurement outsourcing is the transfer of the procurement or purchasing department to another specialized company. This allows the company to benefit from the expertise of the outsource company. This also has cost benefits for the sourcing company.
Procurement and outsourcing enables a company to concentrate on its core competencies without the need to staff and manage an internal purchasing department, with all the costs that involves.
Many large companies have long outsourced its indirect purchases, which are those that allow it to manage its day-to-day activities. This would include such activities as recruitment, marketing, facilities management and office services such as cleaning.
Whilst it seems almost natural for indirect purchasing such as hiring staff or purchasing advertising space, companies are now looking at the cost savings that can be found from the procurement outsourcing of the direct purchasing activities.
Direct purchasing are goods that are purchased either to be sold on to the consumer or as part of a production or manufacturing process. Therefore, if you are a wholesaler, the purchase of your initial products would be a direct purchase and if you are a toy manufacturer then the plastics you purchase are also direct purchases.
In the United Kingdom, the government has gone one-step further and created PFI projects (Public Finance Initiatives) where large companies bid to run public buildings such as hospitals. The winning business provides and manages all the facilities, cleaning and day to day running of the hospital for the next 30 years.
Business travel has always been a popular service to outsource. Many companies allow a separate company to purchase all their travel, flights and hotels. The business benefits from cost savings as well as not having the bother of managing so many small ad hoc purchases.
The public sector has always outsourced their purchasing to various degrees. Much of the procurement is put out to tender and competition to win the contracts is fierce. This is because public sector work is regular holds some cachet and is reasonably well paid.
With the rise of the Chinese, Indian and Taiwan manufacturing capabilities outsourcing of manufacturing has become very popular. Indeed most computers and many electrical goods are now manufactured in the Far East. This means that all of the company’s manufacturing purchasing is also completely outsourced. Not only does the company benefit from very low manufacturing costs, but they also benefit by not having to purchase all the component parts.
You can clearly see that procurement outsourcing is now a key part of many large company’s business strategies and that they are clearly benefiting from this decision.
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To learn more about outsourcing procurement, procurement management & strategies etc visit the Purchasing & Procurement Center Website, the leading website providing Procurement Management & Strategies information & resources. The Center provides many free resources (Reports, Webinars, etc) for purchasing & procurement professionals – among them the most downloaded Purchasing Report over the web, “7 Star Purchasing Report”, which you can get at the website. |
4 quick wins to drive immediate savings across your procurement function
Published January 25, 2011 | Ultimately no two organisations are the same and the quick win opportunities will depend to some extent upon your maturity within your procurement processes and progress made to date. However, our experience suggests that many organisations have opportunities to drive significant savings by simply putting in place basic supplier engagement principles.
The four ideas outlined below provide most organisations with tangible benefits within a short timeframe;
1. implement a central supplier directory – this provides the informational foundation to improve virtually every procurement activity. Besides providing a single view of all suppliers, it enables you to;
- eliminate redundant suppliers and processes
- improve procurement and finance productivity
- enable better supplier categorisation and spend analysis
- deliver savings by removing duplications
2. Strengthen supplier qualification and contract review processes – a good procurement system will support streamlined processes that can quickly;
- identify existing supplier risk so steps can be taken to mitigate it
- reduce risk and associated costs going forward
- automate the supplier review process
3. Perform a supplier rationalisation process and establish corporate contracts – Once you have a central database of suppliers, the logical next steps is to strip out duplication. Spreading your spend across too many suppliers dilutes your buying power, whilst maintaining just one relationship may increase risk of failure. A supplier rationalisation process will enable you to;
- reduce the overall cost of purchased goods and services by negotiating better value
- lock in longer term savings through corporate contracts with preferred suppliers
- reduce the risk of relaiance on just one supplier
4. Deploy a supplier portal – this provides significant savings in administration costs and enables streamlined processes to;
- automate the upfront supplier evaluation
- reduce supplier onboarding effort
- reduce sourcing effort
- reduce purchase ledger activities
Overall, these are just some of the ways that you can deliver very short term benefits and realise immediate financial impact on your bottom line.
The role of the CFO in Strategic Procurement
Published January 25, 2011 | The Chief Financial Officer has a significant role to part in the development and implementation of a strategic procurement philosophy.
The functions that the procurement function performs – supplier management, sourcing and contract management – are often referred to as strategic procurement. However, by working in partnership with the procurement function, the CFO can better understand and leverage strategic procurement in conjunction with other spend control initiatives, to deliver positive impact on the bottom line.
The CFO role is thus;
1. work hand in hand with the senior procurement people
2. use their sphere of influence to gain organisational support for strategic procurement
3. help with the refinement and implementation of procurement policies to drive savings
4. help guide the application of enabling technology
UK PLCS HAVE £60BN TIED UP IN UNPRODUCTIVE WORKING CAPITAL
Published January 21, 2011 | Analysis from Deloitte, the business advisory firm, shows that UK plcs are sitting on £60bn of unproductive working capital.The study highlighted that working capital is unnecessarily being tied up in a myriad of simple transactions.
Deloitte’s Global Review of Working Capital analysed data of more than 20,000 companies from across the globe over a five year period. Unproductive working capital was found to be tied up in basic accounting cycles, for example in the manner in which accounts receivables and payable processes are being handled. Inventory and supply chain management were also noted as a key factor underlying poor working capital management.
What does this mean to your business?
How can you release some of this capital to drive your growth?
Call us now and we’ll be happy to assist you to do just this.
Analysis from Deloitte, the business advisory firm, shows that UK plcs are sitting on £60bn of unproductive working capital.The study highlighted that working capital is unnecessarily being tied up in a myriad of simple transactions.
Deloitte’s Global Review of Working Capital analysed data of more than 20,000 companies from across the globe over a five year period. Unproductive working capital was found to be tied up in basic accounting cycles, for example in the manner in which accounts receivables and payable processes are being handled. Inventory and supply chain management were also noted as a key factor underlying poor working capital management.
What does this mean to your business?
How can you release some of this capital to drive your growth?
Call us now and we’ll be happy to assist you to do just this.
5 areas to trim the fat in 2011
Published December 21, 2010 | As 2011 is fast approaching, thoughts are probably turning to how you are going to achieve your numbers in the year ahead. There is undoubtedly uncertainty in the markets at the moment and the economists seem to be divided as to what the year ahead will look like.
However, your success in 2011 will be more determined by your actions than any external factors. If you look back over previous recessions/ downturns, there are always those organisations that come out of them stronger and more profitable. Equally, there are individuals that thrive when the going get tough and those that just give in!
So, the question is – “which are you going to be in 2011?”
To start as you mean to go on, this time of the year is always good to reflect and trim any fat that exists within your business. Take a look at the following five suggestions and see how these can apply to your organisation. Please feel free to add other ideas within the comments.
1. What activities are you undertaking that is adding no value to your end customer? Once you have identified these, review how you could undertake them differently, more efficiently, or more radically, determine whether you have to do them at all or can you outsource them to a third party who can provide greater leverage?
2. What is your core competence and what non core activities are you doing that can be outsourced? Again, by creating focus on your business function or ideally across the organisation, identify those activities that you must do to support your core competence. At the same time, this will help you identify those activities that are non core. Look creatively at how you can more effectively deliver these non-core activities.
3. Ask yourself the theoretical question – “if I had to deliver the same results with 80% of the resources that I presently have, how would I do it?” – putting this question another way, all organisations have people within the organisation that deliver little or no value. Make it your business to strip the lowest 20% from your organisation each and every year. You’ll be amazed at the impact that this simple challenge creates.
4. In any process, there will be many hand-offs between people within your organisation. Take each in turn and challenge yourself to reduce these hand-offs by 50% – by empowering individuals within your organisation to take action at the front end, you’ll radically reduce the workflow across any process and the efficiency gains will be significant
5. How is your sales and marketing function performing? Research indicates that it now takes a minimum of seven contacts before a prospect raises his/her hands to enquire about your product/ service. What does this mean to you? Well, assuming that you have your targeting correct, how many times are your marketing people or sales representatives giving up after just four or five contact points? By implementing a structured approach to lead generation taking into account the requirement for 7 contacts, you’ll quickly drive new business generation.
Take the opportunity between Christmas and New Year to reflect on how you can apply these five simple steps to ensuring that 2011 delivers your ‘best year yet!’
xynergie to give speech on Sustainable Procurement
Published November 19, 2010 | xynergie delivering speech on Sustainable Procurement at the Public Sector Procurement Conference on 8th December.
The speech will be available to download via our Youtube channel after the event.
Have you heard about the Governments ‘incontinent’ procurement process??
Published November 17, 2010 | Not my words – this is the description given by none other than Francis Maude, the Paymaster General – see this article in the Telegraph
This ties in with the Green Report that highlighted the inefficiencies across Government.
Although it is pleasing to see that Government has last started to realise that there is an alternative to front line cuts, I do question how they will bring real innovation from the private sector and indeed from the SME’s within the private sector to make real change.
The big opportunity for the Government and the country as a whole is to accept that change is required (i think that we are getting there on this point), understand that there are alternative approaches available other than from the big 4/5 ‘consultancies/ outsourcing’ firms (that have been getting fat on the profits that they taken from the public purse over the last few years) and engage with the smaller, more nimble new entrants to the market that bring in all of the innovation.
Only time will tell whether this opportunity is taken or wasted!
Serco – asking for rebates from supplier!!!
Published November 2, 2010 | Serco have hit the headlines this week after their FD sent a letter to their supply chain asking for a 2.5% rebate on work carried out this year on Government contracts. This was their reaction to the decision by the Government to look to their main suppliers to share the load on spending cuts.
Although this doesn’t come as a surprise as it is the kind of thing that Procurement has done time after time – lets go and hit the suppliers over the head and squeeze a little more out of them has been the typical mantra.
So what is the alternative?
The xynegie approach is one that focuses upon collaborating with your supply chain and working with them to introduce innovation to your operations. This results in cost reductions, optimised operations and improved service delivery.
Download our latest white paper to see how this can work in practice.
Government must look to procurement to avoid front line cuts…
Published October 21, 2010 | Press Release – 20th October
Procurement specialist xynergie has called for Government savings announced in the Spending Review [Oct 20th 2010] to be achieved through improving procurement efficiencies, rather than by cutting frontline services.
xynergie chief executive Tony Lockwood said: “Government procurement inefficiencies were highlighted in Philip Green’s Efficiency Review. While the chancellor has said it will make savings by improving efficiency as well as making cuts, we are yet to see how they will achieve this. Technologies and methodologies are available and in-use in the private sector that completely rule out the levels of inefficiency shown in the Philip Green report.
“In the way it handles procurement, the Government needs to get up to speed with the private sector. It must re-engineer its procurement processes and make savings with backroom efficiency, not frontline cuts.”
For further information, go to www.xynergie.co.uk
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