Efficiency savings are only a success if they reduce expenditure. Hard choices lie ahead and there will be no room for accounting tricks or re-budgeting. Start using the mantra: ‘a saving is made when you don’t spend money you would have otherwise spent’. To do this you need to get better deals from suppliers for the same goods and services or stop using the service and/or reduce headcount.
Reduce complexity and bureaucracy
Organizations can deliver significant savings with streamlined procurement policies and processes, within the statutory framework that they must work within. To achieve this, duplication must be eliminated, decisions made faster, red tape reduced and simplified purchasing cycles introduced. Planning and strategy must focus on the immediate need and in its delivery; not having an answer for every possible eventuality.
In addition, simplified processes, with single-minded objectives, aimed at hitting targets and promoting collaborative agreements is a great way of ensuring that benefits are achieved and sustained.
Trust the people to do their jobs – give them the right tools, be clear on the objectives and reward them appropriately and the savings will materialize.
Create an environment where your users do not have to be procurement experts to undertake their buying legally, efficiently and in a manner that clearly demonstrates best value for money for the organization.
Work out what is needed
Be realistic. Address the short term fixes decisively. Build a three year plan for continuous improvement.
Focus is crucial. Be clear on the management objectives from the outset. It may seem obvious but stop spending and doing things you don’t need to do. Do things well. ‘Nice to have’ is no longer a justification and ambitious projects should be replaced by effective streamlining, agility and collaboration across the sector, and with carefully selected partners, to reduce spend.
Evaluate historical expenditure with a fresh perspective, measure it and work out whether you actually need to do it. This will allow discussion of how new approaches could improve performance in key areas without compromising value. Baseline your processes with KPIs prior to re-engineering or automation, so that improvements can be measured and the effectiveness of the process and the impact to the organization’s overall financial objectives critically assessed. Look for quick wins, grab them, but don’t forget the bigger picture.
Run a leaner back-office and increase procurement capacity
Improving the management of spend requires strong internal controls. Promote standardization and simplification and strengthen the internal capability of your Procurement team.
If no money is available to increase resources, greater capacity can only be achieved through efficiency. Centralizing some functions may reduce duplication, devolving other activities may increase capacity, whilst automation technologies offer opportunities to eliminate inefficiencies and latency in the procurement process. Some administrative costs can even be shared with suppliers.
The appropriate combination of local, shared service or outsourced capability will vary between organizations, but to unlock value ensure the back office is as lean as it can be.
The shortage of skilled and experienced Procurement professionals, can mean an over reliance on external consultants. Develop internal resources and become self-reliant. It is more cost-effective. Develop processes that allow key purchasing decisions to be devolved without risk to individuals or the organization.
Consider these initiatives:
Build innovative thinking into management procedures
- Centralise Account Payable invoice processing.
- Decentralize requisitioning and ordering.
- Decentralize sourcing requests.
- Make suppliers responsible for their own data.
- Get Procurement building frameworks and contracts, and managing sourcing templates.
Radical rather than incremental improvements are required. Times of recession will force leaders to open their thinking to new ideas and new methods. Use of new methods and technologies will be key to improving efficiency and effectiveness of public services. Encourage stakeholders to build a new culture.
Innovation cannot be nurtured in a silo. Stimulate innovation by engaging with suppliers sooner in the procurement process, allow time for innovative solutions to be considered and look outside your four walls for ideas.
Embrace technology wisely
Use common sense. If things sound too good to be true, they usually are. The application of new technologies can significantly improve what procurement organizations can achieve e.g. step-by-step business process support, procurement analytics and methodologies for transparently exchanging data with suppliers.
Electronic trading, as an example, is nothing new – Sir Peter Gershon advocated it long after many private sector organizations had already embraced it – yet the public sector has huge areas of manual processing that, if properly addressed, could deliver huge savings.
Now is not the time to bring out slow-moving heavy IT artillery that adds little short-term value other than to the vendor’s balance sheet. Avoid the mistakes of the past, stop creating a technology legacy stretching into decades. Long-term sustainable cost reduction is achieved by eliminating unnecessary complexity that adds cost but no value. Consider best-in-class vendors who are experts in the field and ‘eat, sleep and breathe’ eProcurement. Adopt commercial off-the-shelf (COTS) solutions – they are ready to go immediately and will give agility to the organization.
Irrespective of how these solutions are deployed or managed, the key to success will be ensuring they can adapt and deliver return.