Cost cutting is a huge priority for 2012, and with cutbacks looming, procurement teams will need to make savings wherever possible.

‘Procurement contract Lifecycle: assessing the value of contract automation’, a report conducted by research company Aberdeen Group, highlighted that organisations are missing out on making savings by ignoring the benefits of automated contract management.

The report, based on a survey of 130 organisations, found that many of those questioned are limiting their visibility of spend and contractual commitments by instead relying on old-fashioned, labour-intensive, paper processes.

Missed cost savings, poor compliance and failure to meet legal and business obligations are all implications of a poorly managed contract management system.

Automated contract management systems can deliver control for any type of business agreement by providing the functionality for buyer and supplier collaboration, leading to consistent, easy to reference documents that deliver transparency throughout the entire contract lifecycle, as well as helping in monitoring supplier performance.

Both the public and private sectors have reported benefits including cost savings, improvements in quality of services and achieving better value for money since implementing automated systems.

Aberdeen Group’s report has recommended that companies should adopt more technology to automate contract management and establish a central repository for all procurement contracts, a move which would undoubtedly help organisations in increasing visibility of agreed commitments while providing further opportunities to monitor savings across the business.

Supplier relations have always been important to buyers but it seems that in the present economic climate, it is more crucial than ever to ensure that relationships between businesses and their supply chain remain healthy and free from corruption.

The Supply Management Reader Research Survey 2011 concluded that procurement professionals will be concentrating on cost cutting and supplier relationship management as key priorities throughout 2012.

Some organisations have already started to introduce new measures to help create more transparency in their supply chains.

The notoriously secretive software company, Apple, recently published a list of its suppliers in an effort to tackle criticism over how workers are treated; proving that unsatisfactory supplier relations can certainly generate negative publicity.

The company has also announced that it will be handing over auditing power to independent, non-profit organisation, the Fair Labour Association (FLA) in an attempt to provide unbiased audits across the whole of Apple’s supply chain.

In another example of a company striving to improve supplier relations, builder’s merchants Travis Perkins recently announced that it has invited staff from key vendors to work alongside the head office team. This is a move not too uncommon, with retailers Tesco and Walmart both reporting supply chain improvements since inviting suppliers to work in-house.

With enhanced supplier relations proving to benefit businesses, more may start to look in to increasing communication across their supply-chain.  Where it is not possible to work alongside suppliers, buyers may find eProcurement, eSourcing and contract management software to be beneficial, providing online supplier portals where suppliers and buyers can collaborate and control catalogues, contracts, invoices and other supporting documents.

With cost-cutting a high priority for procurement professionals this year, it seems that improving relationships, communication and trust with suppliers will prove to be a tactical move in helping to meet those savings targets.

Over the last twelve months the country has seen huge budget cuts and rising redundancy rates throughout the whole of the public sector, in a bid to make the savings the country so desperately needs to enable deficit repair.

One year ago Wax Digital, alongside Durham University investigated the opinions and outlooks of public sector procurement and finance professionals towards deficit repair in our report 'Doing battle with the deficit'. We received a surprisingly positive viewpoint from those leading the battle, but is that still the case?

Many public sector organisations are fighting back from the budget cuts and are reporting massive savings through procurement and updated IT systems. Chris Chant, government programme director for the cloud, recently spoke at Teacamp (a government digital networking event) and announced:

 “Government cloud aims to change outrageously expensive public sector IT by slashing system integration costs and reducing the number of back office staff.”

The government has its’ sights set on making savings of £120million per year come 2015. Unrealistic some may say, but with many public sector bodies reporting savings through IT and procurement, these optimistic predictions could well become a reality.

A recently implemented electronic marketplace and purchase to pay system for police forces in England and Wales is expected to help achieve savings of around £30 million over the next six years alone. The ‘national police procurement hub ‘will offer improved contract management through better visibility, a reduction in maverick spend and increased compliance to approved suppliers.

Procurement looks to be leading the way in fighting back from the budget cuts and as a result job losses have not been as prominent as one may have expected them to be in the fight to repair the deficit.

While some organisations seem to be bouncing back from the cuts, there are many that are struggling to implement the most savage spending cuts in a generation.

Councils across Yorkshire are facing huge overspends totalling more than £50million this year. A study of town hall spending since April reveals only four of Yorkshire’s 14 biggest councils are currently on course to meet the stringent savings targets forced upon them by the coalition government.

Stoke-on-Trent City Council is another council facing difficulties in meeting its target savings. Hundreds of jobs have already been cut and a number of key services closed or reduced as the council made savings of £27.8 million. Much-criticised procurement practices at the council could likely be the cause of the £4.5million shortfall in savings. Councillor Sarah Hill, cabinet member for finance, said:

 "We had to make a huge amount of changes at the beginning of the financial year which all came at once, we all recognise that procurement is an area we haven't done well with.”

With so many cost saving success stories in the public sector, procurement could prove to provide a real opportunity for organisations to meet their targets by addressing their current procurement issues and implementing new ways to purchase.

How have you, as procurement professionals found the past year? What have you found challenging? Where could you improve? We welcome your comments.

From our recent ‘doing battle with the deficit’ research' into the opinions of public sector procurement professionals and a roundtable debate we hosted, the opinion and message of those on the frontline of the battle with deficit repair is clear ‘procurement can make a difference, let us take on the challenge’.

Frustration from procurement professionals is evident as Barbara Cairney, head of procurement for Northamptonshire Police commented at the debate “It is a shame that it has taken the current financial situation to bring procurement to the fore, but there is an opportunity to shape the future of the public sector and bring more of our commercial knowledge into play”.

Now it would seem that Sir Philip Green, owner of Arcadia Group agrees that procurement offers a great “opportunity” to save money in the government. Sir Philip has been asked by David Cameron to head up an external efficiency review into government spending ahead of the published spending review in October. You can hear how Sir Philip thinks procurement plays a key role in spending efficiency for the government by listening to his interview with Radio 4’s Today programme.

Immediate Whitehall cuts of £6bn have now been tabled by the new government as the first stage of deficit repair, with savings expected to be made in three areas: reduced public sector recruitment, scrapping IT projects and renegotiating contracts with dozens of Whitehall suppliers.

But swift and rapid savings don’t necessarily need to mean swingeing service cuts, nor should they impact on IT expenditure where there is a swift and highly tangible ROI case.. It’s possible within the space of weeks to achieve contract savings of over 10-20 percent in many areas through well targeted supplier auction events for example, yet many government departments still don’t have a consistent e-auctions policy.

Some of the realised savings from auctions could then be invested in automating public sector buying, ensuring that all spend is on contract and enabling buyers across multiple public sector bodies to collaborate more effectively on purchasing to create a win-win situation of lower prices for buyers and higher volumes for selected suppliers, with process cost savings for both.

Addressing the complexity of purchasing and spending is the real challenge the new government faces but that will not be solved by a slash and slice mentality. There is a proven path to rapid cost savings without bringing valuable long term initiatives to a halt and forcing unnecessary headcount cuts.

Up to £2million of goods were recently stolen in a scam by fraudsters posing as McDonalds buyers. Items including laptops, TV’s and computers were targeted with credit periods obtained between 30 and 90 days.

The goods were delivered to an address in Manchester, but were never paid for. Greater Manchester Police Authority issued warnings to businesses to stay on alert as it is thought the fraudsters are now using the same scam to obtain foods, wines and spirits.

The process automation that class-leading, on demand purchase-to-pay systems can offer, coupled with integrated supplier portals, provides a secure platform whereby buyers can effectively manage their supply-chain with the assurance of compliance and control throughout all standard processes including credit checks, finalising terms of business and other legalities.

This does not however protect the supplier, who when receiving a new buyer request from what appears to be a reputable organisation, should still develop that all important supplier/buyer relationship and carry out all their necessary checks.

With the state of the US economy understandably taking centre stage in the ‘honeymoon’ period of his presidency, Barack Obama and his team are looking for money wherever they can find it, and first in the firing line are the contracts made within public procurement practices. Having already highlighted a potential $40billion annual saving, Obama has called a review of government spending and contracting.

It’s an exercise, albeit on typically a rather smaller scale, that is being replicated in many organisations where the focus on spend and contract management has been allowed to soften while the good times were rolling. 

And it brings the need for adequate processes and systems very much to the fore. We have seen the floodgates open recently in terms of the number of organisations looking to generate rapid savings through sourcing, and we have been able to help contribute to over £10m of savings in the UK alone since the start of the year on behalf of our sourcing clients. But what must not be forgotten is the need to invest in the internal systems that then ensure those paper savings are translated into real bottom-line reduction by controlling purchasing behaviour across the enterprise.

Following on from our recent post about the relationships with suppliers, it was interesting to see in the press that both M&S and Department of Work and Pensions are looking at contract renegotiations with key suppliers.  

Many contracts agreed before the economic downturn are beginning to cause concern for procurement teams, even more so with a weak sterling to consider when negotiating with suppliers outside of the UK.  

Contract renegotiations will be a key exercise for many procurement professionals throughout the year, and not an easy one at that. If contracts cannot be negotiated, this leaves only a few choices; pass on price increases to consumers, make cost cuts elsewhere or drop product lines altogether, as highlighted recently when Belgium Supermarket Delhaize delisted over 250 Unilever products after refusing to meet price increases for product promotion. 

In an interesting move to tackle the challenges ahead, BMW and Daimler have recently come together to take advantage of economies of scale by jointly purchasing electronics. As demonstrated by these two automotive giants, perhaps now is the time to make some otherwise unthought-of strategies - is there a better way to approach your contract negotiations? What could you offer your suppliers in exchange? After-all, it is a two-way street.

SAP has finally disclosed the date of its next eSourcing release cycle as Q3 2009, when it intends to deliver better usability (shouldn’t be too hard!), support for complex pricing structures and finally to release dutch auction capability. 

After this, don’t expect any major improvements until well into 2010 – always assuming that SAP sticks to its own roadmap – when a further release will focus on coupling process integration between eSourcing and the overall Business Suite. 

For the next general release, SAP users out there will have to wait until at least 2011 when SAP, with more functional enhancements including the tight integration of SAP PLM and SAP SCM as well as industry specific business processes.  

The big issue for purchasing teams looking to (or saddled with) SAP isn’t really addressed by any of this however. Namely, whether the various SAP modules that compete in this space – such as SAP eSourcing and SAP sourcing within the SRM module – are ever going to be truly integrated and free of overlapping functionality. How SAP eSourcing users (and data) will interact with the sourcing capabilities resident in SAP SRM, especially the complex operational sourcing and bidding capabilities SAP SRM 7.0 remains an unanswered question. 

Could be time to look elsewhere?

A recent survey by Supply Management magazine suggests that nearly three quarters of buyers are looking to make cuts to their vendor list and use fewer suppliers.

77 of the 100 buyers surveyed said consolidation would make the supply base more manageable and cost-effective, and while there is no doubt this is true it beholds organisations to make sure they don’t simply take a knife to the vendor list without careful analysis of the risks involved. Supplier rationalization efforts can increase supply risk as well by limiting a company's options and back-up plans if a disruption, quality issue or supplier bankruptcy occurs.

A clear and accurate picture across the supply chain is an essential pre-requisite, which is of course where purchase to pay systems play a significant part, but category expertise can be equally important and companies considering supplier rationalisation should draw heavily on the experience of their eProcurement vendors or advisers.