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.

Outsourcing has been a common topic for discussion in the procurement industry in recent weeks- this is perhaps due to the mixed bag of opinions that arise when it comes to weighing up the positives and negatives of sourcing products, services and whole departmental functions from external suppliers.

Logistics software company Freightgate conducted a study on trends for 2012 which concluded that supply chain and logistics outsourcing are set to become increasingly popular over the course of the year, with an increasing demand for better collaborative business processes said to be at the heart of the predicted trend.

Peter Smith started the New Year with an article in the UK Spend Matters blog titled ‘Why the public sector needs more outsourcing’ which has since sparked a series of discussions on the whole issue of outsourcing in both the public and private sectors.

The economics of outsourcing have long been disputed among buyers; mostly because of the costs associated with obtaining products and services from external suppliers. But there are also ethical factors to consider - unsafe oil rigs, poor railway maintenance and sub-standard cleaning in hospitals have all been associated with the culture of outsourcing, problems which can generate bad publicity as well as preventing organisations from achieving their (often well-publicised) CSR policy.

While procedures and software can be implemented to help organisations effectively monitor and measure the standards and costs of external suppliers, it is important to ensure that the right balance across quality, efficiency, responsibility and costs is achieved for outsourcing to meet the original needs and organisational objectives.

From the start of next year, most public procurement processes are set to be governed by a 120-day deadline. 

Supply Management reported that Cabinet Office minister Francis Maude called for the changes in response to the revelation that the average government procurement currently takes around 200 days to complete. 

The government aims to achieve the target by encouraging closer and earlier engagement with suppliers and markets which should enable more clear and concise invitations to tender, it is hoped that publishing the data will expose failings in the system and encourage greater clarity in government procurements.

eProcurement software is proven to cut costs and shorten the buying cycle by providing transparency through the buying process as well as substantially reducing the processing time. Could eProcurement prove to be the key in helping the government adhere to the strict EU public procurement rules and meet the 120 day deadline?

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.

Supply Management reported this week that state income for some universities will be reduced from 60 percent to 40 percent, which will take many below the 50 percent marker that requires EU public procurement rule compliance.

Could reductions in public funding have an upside for universities and ring the changes in sourcing and procurement?

Minister for universities and science, David Willets thinks so.

While the cuts will hit universities hard, supply chain agility will offer a real opportunity. Establishments, like our client Durham University, will be able to operate more like the dynamic buyers of the private sector rather than the public procurement teams that so often get tangled up in red tape.

Being released from EU public procurement rules will mean that the higher education sector can start a new term of bigger savings and greater local economic support.

 We recently talked with Peter Smith of Procurement Excellence, the Spend Matters UK/Europe blogger. It’s always reassuring when fellow procurement experts understand the power of putting the people rather than the process of procurement first and that systems used to manage those processes must be intuitive.

Speaking of Wax, Peter commented that “their marketing background perhaps explains a core belief; that “intuitiveness is fundamental”. For example, they look to replicate the ‘Amazon type’ user experience in the B2B environment rather than the traditional ERP approach.  And that rubs off into other user-friendly features; being able to approve requisitions via email without having to go into the system for instance.” His full analysis can be found here. Subsequently we were able to introduce Peter to Malcolm Preston, Associate Director of Procurement at County Durham & Darlington Foundation Trust. It’s a procurement organisation relatively close to his heart, both as a fellow North-Easterner and as he put it, the place “where all four of my grandparents breathed their last”!

As with most who hear what the team at this Trust has achieved, Peter commented [http://spendmatters.co.uk/nhs-procurement-success-story-durham-part-1/] on the level of adoption and compliance to procurement approaches that “very few private sector firms have managed”, including a working no payment without PO system, 100% electronic procurement transactions, online catalogues with user friendly requisitioning and ordering and a catalogue choice that drives standardisation and demand management. It’s something special to see what they have achieved as a team and with considered technology choices. 

A third post by Peter delved deeper into Malcolm Preston’s ongoing belief in the value of data as the crux of bringing procurement in line with organizational goals. This will be absolutely critical in the health service but in any industry in reality. Preston commented [http://spendmatters.co.uk/nhs-procurement-success-story-durham-part-2/] that “if we do move to a more competitive environment in health provision, hospitals are going to need to understand better and then manage how much it really costs for all the different elements of a patient’s treatment; the total pathway cost.  Few hospitals can do this now with any accuracy. And a large part of that cost comes from bought-in goods and services. To achieve that understanding, data is king – it enables us to do that costing properly, as well as comparing prices across sites and Trusts, leverage our spend and rationalise suppliers”.

This is all further reinforcement that procurement is fundamentally about people, before prices and process. Technology will only enable the process and the right prices if it embrace the people, whose knowledge and strategy should be represented at the highest level of any organisation.

Following on from our last post on The Procurement Pandemic, the NHS finds itself at the centre of a storm again this morning with the publication of a National Audit Office (NAO) report that concludes more efficient purchasing could save hospitals £500m on basic supplies.

The NAO report is confirmation of what many of us have long known; if hospitals worked together on purchasing, millions could be saved without making any changes to front line health provision. The disjointed nature of purchasing and lack of visibility into spending patterns however is holding back this most obvious route to deficit repair.

The report highlights the huge variation in what hospitals buy and what they spend on operational purchases. It’s clear that the current system offers far too much choice and quite frankly, choice is a luxury we can no longer afford − the financial impact of contract overlap isvastly underestimated.

In the case of the NHS, too much choice has resulted in the existence of hundreds of individual non critical purchase contracts. Each contract dilutes the service’s collective ability to save money and forces it down a route which, instead of leading to best value, leads to a dead end.

The only answer to the complex, but by no means insurmountable problem of wasteful health sector procurement lies in joining up purchasing power and procurement excellence across the NHS through simplifying contracts and implementing the right technology. It’s an approach that’s already yielding the right results for forward-thinking trusts, like County Durham and Darlington and it offers a model which is ripe for replication on a national scale.

In an interview with Radio 4’s Today programme last week Sir Phillip Green, billionaire owner of the Arcadia Group, told how he felt procurement offered a real “opportunity” to save money for the government in its bid to reduce costs, describing how he and his world-class team would be scrutinising government spend as part of the external efficiency review that David Cameron has asked him to conduct.   

With short timescales and deadlines Sir Phillip’s first goal is to identify where funds have been spent. “We need to obviously accumulate a large amount of information across some key areas of spend.....It’s all a question of what availability of information there is, how good the information is, that we’re able to respond”. He added “I think what we need to do is, we need to get ourselves focused on the big spends in which departments, where is the money actually being spent?”  The question now is – will Sir Phillip and his team gain clear visibility of government spending in order to truly analyse where efficiencies can be made?  

In our recent ‘doing battle with the deficit’ survey into the opinions and attitudes of public sector procurement professionals we discovered that 82% of survey respondents believed that savings are most likely to come from spending efficiency, but only 6% believed their spend management processes were ‘highly efficient’.  Over 25% of procurement professionals in the public sector questioned did not know what proportion of their organisations overall spend was ‘maverick’ or off-contract’ and an indication of the wide and varied manual, part-manual and fully automated spend management processes could also be adding to the lack of visibility and accurate reporting.  

Process automation and purchase-to-pay solutions provide clear and accurate visibility – the first step towards analysing spend and identifying where savings can be made. Without solutions such as these in place across all areas of the public sector, will Sir Philip meet his challenge?

Alongside Durham University, Wax Digital recently undertook a research programme to investigate the opinions and outlooks of public sector procurement and finance professionals towards deficit repair. Somewhat surprisingly the findings revealed a positive and pragmatic viewpoint from those leading the charge into battle with the deficit.

Although it was acknowledged that times ahead are going to be difficult with 78% of respondents anticipating budget cuts of more than 5% this year and 69% expecting these cuts to increase the following year; the individuals at the frontline are still keen to forge ahead with cost-saving initiatives and processes. It was evident that public sector procurement and finance teams want to simply get on with the challenge and recognise that they need the freedom and the tools to do so although this is not always possible. Bureaucracy and lack of automation were highlighted as obstacles that they face.  

Process automation and technology was highlighted as key enablers to drive efficiencies, cost savings and help achieve the targets set by the new coalition government; findings also revealed that where eProcurement solutions have been introduced savings have been realised. 53% of the sample saved between 10% and 50% from new IT solutions.  

From working with both public and private organisations we have seen the difference that these types of solutions can bring and how those forward thinking organisations that drive change and purchasing initiatives reap the benefits. This is in stark contrast to only 6% of the public sector survey respondents who felt that their spend management processes were “highly efficient”.  

With the challenge clearly set by the new government it is time for public sector procurement and finance professionals to lead the charge into the battle with the deficit, but do they have the armouries to fight a good fight?

Download your copy of the research report and post your comments, sharing your thoughts about the emergency budget and the challenge of deficit repair for the public sector.