How private sector companies are waking up to the power of collaborative purchasing
Purchasing frameworks in the public sector have operated for many years
There are several reasons why such frameworks have been established, reflecting significant differences in procurement within the public and private sectors:
- The public sector is considerably more constrained by regulations than the private sector.
- There are more complex customer requirements that go well beyond typical buying expectations - with areas such as social value, driving local employment and enhancing education often in the mix.
- The number of stakeholders involved is often wider and more complex. Contacts that sit outside the buying organisation, such as analysts, technical professionals and politicians often have major influence.
- There is a greater requirement for transparency. The public have a particular interest in reviewing how their money is being spent.
There are often big financial advantages to buying through such frameworks
With large volumes being processed through these government frameworks, it is often possible for public sector buyers to secure lower pricing.
Larger, guaranteed levels of spend create economies of scale and a willingness from selected providers to provide more competitive pricing.
Head of Procurement, Local Authority
In addition to having more confidence in who we are buying from and a generally more straight forward transactional relationship, prices are often lower (than buying direct) which is very valuable in the current environment
Most private sector companies continue to go it alone...
With less complexity around procurement for most private sector companies, the use of purchasing frameworks is still in its relative infancy.
Most private companies prefer to negotiate directly with their preferred providers and supply chains.
Procurement capability is generally accepted to be higher in the sector, with larger and more mature internal procurement teams operating in comparison to the public sector.
The buying of goods and services in key 'direct' spend areas such as materials, components and sub contracted services is usually managed by highly experienced teams, commercially minded and with clear goals for creating enhanced supplier relationships and value for money.
...and many spend areas (deemed too small) get overlooked
When it comes to some of the 'smaller' areas of spend - usually 'indirects' such as office supplies, print, IT consumables or telecoms - there is usually far less focus and resource.
For most small to medium sized companies, there is a tendency to focus on the big spend, core 'direct' areas:
Finance Director UK & Ireland, Manufacturing Business
The collective spend of all of our business overheads is probably not even £3 million in total. It doesn't merit having a full time resource looking at it. We focus our resource where the lions share of the (direct)spend sits
Many large organisations take a similar viewpoint, even though comparatively 'lower' levels of spend can add up to create significant sums.
A global recruitment company with an annual turnover of over $500 million was spending nearly $700,000 on one of its regional telecoms agreements, with no professional procurement focus in this category.
The volume of spend was deemed 1) too small for a dedicated internal resource 2) not big enough to merit hiring an external specialist, with the associated fees of this activity.
So, in spite of big changes to the telecoms supply market in recent years and opportunities to access better pricing and value for money, the area remained stubbornly aloof of a proper and rigorous procurement exercise.
The rise of private sector purchasing frameworks
A growing number of organisations have been experimenting with the creation of dedicated purchasing frameworks geared exclusively for the buying of goods and services in the private sector.
Some have attempted to do this by grouping together a number of partner organisations, with mixed results.
Coordinating such a partnership can be a time consuming and complex exercise, with each partner having significantly different views on what is important and a frustrating outcome in reality.
A potentially effective answer to this issue is in the creation of independently coordinated purchasing frameworks. In this situation, a neutral organisation manages a network of carefully vetted suppliers, who provide corporate level pricing to a growing membership of framework organisations from multiple sectors.
The products and services in scope are aimed specifically at key business overheads and indirect areas, where a simple 'like for like' (or same spec) change can be made, with relative ease.
The theory is that as the framework membership expands, so the bargaining power increases which ensures that prices are controlled - or even better, heading downwards - for the long term.
Organisations have reported extremely interesting early stage results with double-digit savings being achieved in telecoms, office supplies, print, IT consumables, furniture, and work wear:
Finance Director, UK Food Manufacturing Business
The framework has basically taken away a lingering headache around what to do with the smaller spend areas. We've already seen some excellent savings including a 32% reduction in our fixed line and mobile telecoms spend
As more organisations begin considering options for the management of indirect spend, such private sector framework developments are likely to be of growing interest.
Points to consider
- Public sector organisations have enjoyed access to lower prices by being members of regulated buying frameworks for many years
- A growing trend is emerging in private sector companies to explore tailored versions of such frameworks for their own use
- Independently managed private sector frameworks can be a highly effective way of enabling access to these benefits whilst reducing complexity
- Smaller areas of indirect spend, which would otherwise be overlooked, can be excellent categories to move directly onto such frameworks, with double digit savings already being reported