Introduction

Experience together with the results we have delivered has identified six R.E.S.C.U.E points where businesses often make mistakes that have a commercial impact.

Here is a brief case study focusing on R for Resource.

The Problem

While there will be some exceptions the majority of SME’s “manage” procurement via personnel that already have a major role in the business. This includes FD’s, Op’s Managers, PA’s etc.
The following points provide an overview of a classic example where a business has devolved the act of buying products and services throughout the organisation.

• Co was split into six business units, each one with an individual manager
• Their primary role was to achieve an ambitious production plan
• They had no time nor the skills to manage procurement tasks
• All purchasing on an individual basis even though there was significant commonality
• No co-ordination, no co-operation & no significant planning
• No clear tendering process
• Continuous repeat orders & no time for negotiation
• Member of office staff was purchasing their own requirements & repeating the same mistakes

This type of arrangement presents several dangers or threats to the business.

First, suppliers learn that the majority of quotes will not be challenged, which will result in higher prices being quoted than would to an organisation with a better focus on purchasing

Suppliers and their representatives will look to develop a very familiar relationship to ensure repeat orders without any requests for new quotations.

Each buying unit within the company is basically acting as a separate business. Overall, their collective requirements will be substantial, but they are diluting what ever commercial leverage they have by acting independently.

The business will also be at risk, as they will be operating on the terms of the conditions of the suppliers.

The Solution

The business asked us to carry out a significant assignment, which involved benchmarking a large number of products & services but also looking how they managed the act of procurement and relationships with suppliers.

The initial focus was on obtaining a complete picture of the company’s requirements. This involved collecting, analysing and consolidating purchasing data for every product or service across all the business units to develop itemised baseline.

We involved all the business units and office staff to agree specific service level criteria for the business as a whole for each product or service under review.

A lengthy but detailed tender process was carried out across all areas highlighted for review. The majority of current suppliers were included in the process.

The main headline points from the review were as follows:

• Achieved cost reductions ranging from 17% to 42%
• Reduced number of suppliers by more than 25%
• All reductions were secured via current suppliers

To prevent a return to their original bad habits we proposed changes to their internal processes. We helped them to identify an office staff member who would be able to manage the procurement process for all the business. This not only ensured that future negotiations would be based on all their requirements, but it also helped to give back some precious time to the business unit managers.

The suppliers selected from the review process formed an initial approved supplier list. We then introduced a process to ensure any potential new suppliers would need to have the same criteria, as a minimum to be considered for future requirements.

A simple procurement strategy of holding regular reviews with suppliers was introduced. This would help to solve any problems quickly, plan for changes in demand or market conditions, but also to learn about new products and services in the supply chain that can make the business more competitive.

We also introduced regular internal meetings between business units & procurement to improve communication & build trust. This would also help to quickly highlight any problems, both within the internal processes but also the supply chain.

This is not a one size fits all solution, as every Co is different but hopefully it shows why businesses must give some focus to procurement and the benefits it can provide.