The six fundamentals of procurement
Procurement isn’t rocket science, it’s not brain surgery and it’s not curing illness, junior buyers have been told.
For the most part, procurement is “absolutely about following a series of systems and processes” to identify, source and manage contracts, said Matthew Sparkes, head of financial services at the Crown Commercial Service (CCS), who describes himself as “not a procurement person by trade”.
Speaking to new buyers and non-procurement professionals with purchasing responsibilities at the Procurex conference in London, Sparkes shared six top tips for buying right.
1. Identify customer need
Identifying stakeholder or customer need, and separating it from what the customer wants, is crucial, said Sparkes. “If you don’t understand what that need is – it doesn’t matter what the want is – you’ll get it wrong.”
Using the example of Heathrow’s Terminal 5, Sparkes said the airport originally wanted “rows and rows of check-in desks”. The procurement team identified the real need wasn’t having enough desks, it was moving footfall quickly through the terminal. Armed with this understanding, Sparkes said the procurement team suggested an alternative solution based on supermarket checkouts, reducing both check-in times and costs.
2. Look outside your market
Heathrow’s procurement team were able to suggest an alternative to traditional check-in desks because they understood what other options were available, said Sparkes. No only should buyers understand their own market, but they are always looking outside their market for innovation.
3. Prioritise relationships
Good contract management will give you what you expected to get and it’s important to regularly check suppliers are meeting contractual obligations. “But the relationship is the bit that will give you over and above. It will give you the growth, it will give you the innovation, it will give you the partnering if you want to run it that way,” said Sparkes.
Relationships take time, so think about which suppliers are more important to you and how this might change in the future.
4. Collect spend data
Spend data is possibly the most powerful tool buyers have, said Sparkes. Data can help buyers get a view of exactly what they are buying, who they are buying from and frequency, thereby helping to find savings.
Analysing spend data helped Sparkes save £3m on a single contract, he said. Widgets he was buying at a premium with a flexible ad-hoc contract were actually being bought very regularly. “The data essentially said for three years we’d been buying this every quarter, pretty much at exactly the same time.” By changing the contract to help the supplier balance their workload he was able to get a much lower price.
5. Communicate what you are doing
When going to tender be clear about all aspects of what you are going to do in your procurement, said Sparkes. Be explicit about your market strategy and where you are in the tender process. “If you’re going to work well with people, you need to bring them on that journey with you, and that starts with the first engagement.
“It will also – and this is quite practical – reduce the levels of quite frankly annoying emails writing to get hold of ‘when are we doing this’ and ‘what’s the next step’.”
6. Know your negotiating position
Agree your position with your stakeholders upfront, including red lines and walk away points, before you start negotiating with supplier. “It’s absolutely about understanding what I can do in the [negotiating] room and not having to take things away,” said Sparkes. It will empower you and generally help things go a lot smoother, he added.