10 Top tips for better procurement and cost reduction within the Third Sector and HEY Mind interview
Many organisations have cut activities, made redundancies or even closed altogether since the economic downturn of 2008, which had an effect on both businesses and charities alike. For charities, they've seen public spending cutbacks and increased competition for donations (leading to a reduction in their own donations) in the past 9 years which has forced many to dip into reserves to maintain their service provision or worse still, close their doors altogether.
And in addition, there's been a rising demand for some charity services because of the downturn in the economy. So it's been a catch 22 situation as some charities have reduced their service provision to such an extent (merely to survive) that they have nowhere left to go, without having an impact on the services they provide.
However, along with more traditional responses to these pressures, it's becoming widely accepted that better procurement could lead to dramatically improved finances.
One charity that's taken that ethos and run with it is Hull and East Yorkshire Mind. Mind provides help and support, for anyone experiencing mental health problems, directly to those who need it with a network of more than 140 local Minds offering specialised support and care based on the needs of the communities they represent.
David Smith at HEY (Hull and East Yorkshire) Mind explained, "We have to make sure we're as efficient as possible when it comes to procurement. We have a great admin and finance team, we regularly review the supply chain, consult with peers and we're aware of the market place at all times to ensure we're getting the right deals for the charity to provide our core activities and support."
Over the past 9-10 years, it's clear that some organisations have suffered to the extent of having to cease their charitable activity due to a lack of funds. It's obviously not solely down to barriers around procurement that are restricting growth, depleting reserves or reducing internal efficiencies. But value in terms of service, reliability, quality and price are more important than ever explained David, "Increasing operating funds, to deliver the support and services that we do, will always be a big focus for us. We're involved in fundraising drives and trading but we definitely appreciate the value that should always be put on a strong procurement strategy. Without this you're wasting the valuable resources that your team, volunteers and donors are working so hard to build."
Within businesses and charities, employees often suffer from a lack of time, experience and energy when securing the best deals from suppliers. At this point we should state that the majority of employees out there that we come across are always trying to do the right thing by the organisation they represent and will happily consult with an external procurement team However, there's a feeling in some organisations (both business and charitable) that some departments resist efforts to establish professional procurement partnerships and practices or utilise outside help. Employees should always understand your organisational procurement strategy - training and expert outsourced support is essential and shouldn't be blocked simply to "protect" a role. Is the right perception and attitude in place to realise successful procurement for the benefit of the organisation?
The management of the supply chain is another key component impacting organisational performance. A successful supply chain is dependent upon mutual trust and understanding, but do enough organisations view their suppliers as partners? Challenging suppliers and testing the market place often leads to better long term and efficient relationships. Make your suppliers work hard for you. Evaluate and improve communications with your supply chain, build closer relationships between employees and suppliers to ensure both parties understand the end goal and regular third-party evaluation will ensure that your procurement strategy delivers lasting value. David explains, "Over the past 3 years our cost base hasn't risen. In fact, we have significantly reduced costs because we've put more emphasis on procurement and the way we utilise the supply chain. We're now partnering with more efficient suppliers too."
Another example of charities struggling with the supply chain is regarding existing relationships and contracts that were negotiated without putting value first. We recently worked on a cost cutting strategy for a well known national charity. Their work is vital but they'd suffered over the years with misplaced loyalty to existing suppliers. This had resulted in them being a long way from being market aligned with the majority of their procurement portfolio. They certainly weren't in this position due to neglect of responsibility or a lack of energy regarding their continual support for the organisation (over many decades!) they'd simply fallen victim to taking a supplier's advice at face value.
Another reason that charities may lag behind the private sector in taking a more analytical approach to procurement is the lack of shareholder pressure. Charities are often still focused purely on revenue/ increasing funds rather than improving savings and the supply chain value. Cost saving, improved spend control/ analysis and the visibility of procurement provides a great picture of who is spending what and when, and the ability to spot "maverick" spending or the wasteful use of resources. David explains, "We have an admin and finance team and processes in place to ensure no wasteful spending occurs and for dealing with billing errors and anomalies that occasionally occur from the supply chain. Because of this I believe we have fewer problems than some charities when it comes to regulation within energy contracts and insurance policies for example. We also actively monitor supplies and the supply chain for regulatory changes."
10 Top tips for better procurement and cost reduction within the Third Sector
Like any other kind of business, charities and the Third Sector need to develop and learn if they want to be able to compete and thrive. What makes a charitable organisation successful in the early stages (personal passion and an immeasurable belief in the cause), isn't necessarily what will help them endure and grow in the longer term.
With little respite from the effects and reduced donations many have seen, from a recession that hit over a decade ago, charities need to gather all the resourcefulness they possess, and hone their buying habits. This will ensure they continue to be relevant, appealing, efficient and effective for the beneficiaries they represent, and the backers who want to give both time and financial support to help deliver their charitable goals.
However, if a charity (or business) buys into the strategic value of procurement and thinks beyond procurement as a simple cost-cutting tool, it has the potential to positively impact on the performance and growth of every organisation. Value has many facets and price is simply one of them. External help may be necessary to realise the other parts of "value".
A close partnership with suppliers, better communication with trustees, employees and the supply chain, is more likely to free up cash and steer service growth. And on the flip side, David concludes, "The supply chain can always make improvements when it comes to providing procurement and management services, help and advice for charities. They need to be really clear about what's on offer in order for us to truly compare costs and terms."
"Within businesses and charities, employees often suffer from a lack of time, experience and energy when securing the best deals from suppliers. At this point we should state that the majority of employees out there that we come across are always trying to do the right thing by the organisation they represent and will happily consult with the external procurement team that have either been recommended to them or that have been brought in by an FC, FD or MD. However.............................."