How's your charitable donation being spent? The 5 main problems Charity Cost Saving by Molly

How's your charitable donation being spent? The 5 main problems

Aside from the cuts in grants/ funding from local and central Government and increased competition for donations, charities are facing challengers and problems that are resulting in them having to dip into reserves to maintain their service provision. But along with more traditional responses to these pressures, it's becoming widely accepted that better procurement could lead to dramatically improved finances. Plus, don't charities have an obligation to ensure they're spending their funds in the best possible way to donors, volunteers and supporters alike?

The vast majority of products and services that charities purchase have the potential to pose serious challenges for them if they're aiming to secure the best deals. Also, many charities (even big name national ones) work in small units across the country and may be purchasing goods, such as stationery, locally. Although each individual bill could be small, across the charity it could add up to thousands of pounds of inefficient and non cost effective spending.

Without a strong and robust procurement strategy, it could be argued that you're wasting the valuable resources that your team, volunteers and donors are working so hard to build. We've highlighted the 5 main problems;

Time, Experience and Energy

Charity employees and trustees should always be doing the right thing when it comes to dealing with the supply chain of their essential services. This may be energy, insurance, telecoms or more charity specific needs such as equipment or premises maintenance work. But are these people skilled procurement professionals or are they enthusiastic trustees and employees who are simply dedicated to the cause of what the charity is trying to achieve? Is it fair for charities to put the pressure of spending wisely on the shoulders of people that are likely involved in the charity because of a different skill set that they provide?

For example, it came to light, a couple of months after its collapse, that the problems that led to the collapse of Kids Company were raised with trustees as early as 2002 - 13 years before the charity actually closed its doors. The trustees were alerted to criticism of management and use of funding at the charity with a lack of experience or seniority in place and weak finances. And yet, The Government continued to provide grants, donors continued to donate and volunteers continued to help with both their time and fundraising activity.

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 grow in the longer term.

Barriers to Change

Unfortunately, we've also witnessed first-hand, the other side of charitable spending. Employees blocking a cost reduction, time saving and enhanced service solution, simply to protect their (labour intensive) way of purchasing and possible role/ status of employment. Employees should always put the charitable activity/ service provision at the heart of their continued employment. A different way of purchasing doesn't necessarily make your role redundant; it simply frees your time up to produce meaningful management information. Is the right perception and attitude in place to realise successful procurement for the benefit of the organisation?

Maverick Spending

Maverick spending either intentionally or not, is the result of people ignoring pre-defined procurement processes or relates to employees spending outside of an organisation's purchasing terms.

This clearly needs to be tackled by charities to ensure funds are being directed to the cause rather than unnecessary expenditure throughout the supply chain.

The main goal is not to lose the already discussed discounts and benefits. For business supplies and services (this covers a huge list of products) for example, consider working with a supplier that can provide electronic catalogues. These are online portals that approved people within the organisation can purchase from, regardless of their location nationally or site. The use of these catalogues ensures the negotiated price between suppliers and buyers is maintained and generally, it can offer significant discounts compared to market prices.

Adapt different processes for different types of purchasing needs. And this process must be clear and well understood by all. The easiest way to buy something is to pick up the phone and call a supplier, but this bypasses any good purchasing best practices. If charities were to gain control of their internal purchasing processes, they would be able to eliminate maverick spending. The rules for proper purchasing must be clear and well communicated throughout the organisation.

Charities are often still focused purely on revenue/ increasing funds rather than improving savings and the supply chain value. Cost reduction, 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.

Lack of Commercial Acumen

It's understood that there are over 200,000 registered charities in the UK and it's likely that fewer than 100 have a professional procurement person or function. Therefore, there is the possibility that some charities simply aren't purchasing in the most commercially viable way.

The biggest challenge is getting the charity to embrace and understand procurement. Procurement can be a major element in getting the confidence of donors that their money is being used well by the charity. It's estimated that UK charities spend over £20 billion a year with suppliers. So there would appear to be plenty of scope for the sector to make sure they get the best possible value out of their supply chain.

But we know from experience that this isn't happening and that the people tasked with procurement within charities are sometimes lacking in the commercial acumen to buy well. Just last month one of our Directors had a meeting with a charity. The person at the charity exclaimed (regarding their electric), "we get 8 pence per kilowatt hour - you can't beat that can you!?" This way of buying energy/ thinking about energy is so very wrong on many levels (it's too much to go into here unfortunately) and is almost guaranteed to get you a BAD DEAL for your organisation.

Supply Chain Dishonesty and Rogue Practice

You would think that this was impossible within the Third Sector wouldn't you? But again, we've witnessed firsthand, the kind of 'deals' and contracts that charities have signed up to in the past and what they were told about said contracts. We recently worked on a cost reduction strategy for a well known national charity. 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, they'd simply fallen victim to taking a supplier's advice at face value. Charities (and businesses) SHOULD in theory be able to do this of course. But businesses like ours wouldn't exist if they should/ could................

CONCLUSION

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.

And they should also chat with outsourced procurement specialists. After all, how do you know what's out there in terms of provision of services/ products or new technology if you never speak to anyone.

"But we know from experience that this isn't happening and that the people tasked with procurement within charities are sometimes lacking in the commercial acumen to buy well. Just last month one of our Directors had a meeting with a charity. The person at the charity exclaimed (regarding their electric), "we get 8 pence per kilowatt hour - you can't beat that can you!?" This way of buying energy/ thinking about energy is so very wrong on many levels (it's too much to go into here unfortunately) and is almost guaranteed to get you a BAD DEAL for your organisation."