Whether you’re purchasing for a small business or you’re part of a procurement team in a large organization, harmonizing the various needs of your company can be a challenge. How do you create efficiencies by centralizing procurement, while maintaining staff independence? How can you ensure everyone in the organization has the items they need without overloading the procurement team with purchase requests?
Online procurement presents an opportunity to balance these requirements. Below are some tips on how to use a digital purchasing system to improve your business function and achieve goals which may initially seem difficult to reconcile.
1-Consolidate tail spend
Tail spend—everyday purchases that aren’t needed for production, such as office supplies and IT equipment—can rapidly become a headache for the procurement team. As 20% of tail spend purchases are spread across 80% of suppliers, this broad base means it can become extremely difficult for Procurement to keep up with who in the organization is spending what, and where these purchases are being made. The procurement team can end up wasting significant time trying to locate these purchases, which are often not bought at the most competitive prices.
However, staff want to feel respected and trusted to make purchasing decisions for their own departments. They want to buy supplies as they need them, rather than asking Procurement for permission for every small item. An art teacher is best equipped to know which paintbrushes are right for their class, but equally the procurement team needs to know employees are achieving the best value for the organization.
This can be solved by buying all tail spend items online, using a central transparent and efficient program. Olivia Rowling, founder of the Butterfly Patch Nursery group, did exactly this. Her business’s previous procurement model, using multiple suppliers, meant they used to spend around £20,000 (US$26,500) kitting out each new facility. Moving to online purchasing meant the cost of each nursery was driven down by 60%.
This online shift was also instrumental in helping save hours in planning and administration for her team. As the approval purchasing process has been made easier, managers can simply add what they need to an online basket, before their orders are approved and processed by a central decision-maker. Her team saved time and could focus on other goals. Olivia sees digital procurement as a useful aid to help reach her goal to launch 300 nurseries within the next three years.
2-Compare prices quickly and efficiently
It’s important to get the best possible value when making purchases, and this is especially relevant in an organization managed by strict overarching policies. For Rob Owens, chief operating officer of Stephenson Multi-Academy Trust, procurement was guided by governmental requirements. Under MAT rules, the price and quality of each item the procurement team wants to buy has to be compared against three different suppliers. Owens recalls that on some days, the finance team had to place hundreds of orders—from stationery to software for departments, to furniture—making the process of seeking and quality-checking three different suppliers very protracted and inefficient.
By moving to online purchasing, Rob’s team could easily and quickly compare suppliers’ prices and quality, satisfying the Trust’s procurement rules and saving a huge amount of time and resources. Not only were they able to secure cheaper prices than they were getting previously, but the time invested in procurement was massively reduced. It also gave the procurement team freedom to explore interesting new projects, which they had been unable to do due to time constraints. Staff felt satisfied and excited by the prospect of reducing laborious paperwork and using that time to focus on new ways to develop the MAT’s provision to students.
This also generated substantial time-saving benefits for the teaching staff. According to Rob, the less time teachers spent procuring, the more they could focus on their core job. There was an additional cost-benefit, too: Rob explains that any savings teaching staff make is more in their budget, so they can buy more for their departments and, consequently, more for the students the schools serve.
This ability to compare a vast selection of suppliers creates a competitive market that is a huge advantage to any organization. In fact, business customers have reported a 94% competitive selection parity, which can reduce prices by up to 70%.
3-Decentralize the procurement process
It is often practical for wider parts of an organization to have purchasing powers, so they can order individual items, rather than making requests to the procurement team every time they need to buy a printer ink cartridge or a box of pens. This has obvious time-saving advantages for the procurement team, but it can rapidly become complicated and difficult to track.
The University of Leicester employs 4,000 people, over 100 of whom have purchase cards. The lack of a digitized procurement system, coupled with the relatively large number of staff with purchasing responsibilities, made it difficult for the procurement team to track expenditure across the institution as a whole.
For Anthony Midgley, category manager and procurement systems lead at the university, modernizing the procurement process so spend was immediately visible was extremely useful. Midgley was able to clearly see, in real time, what was ordered with the system, instead of spending time chasing records at the end of the month. This allowed him to use time more wisely, enabling him to ensure the university procurement function ran as smoothly as possible.
Another advantage of decentralized procurement is the ability for each office and branch in the online shop to have their own name and billing address, set up by the chief procurement officer. If the same invoice number and payment terms are defined for all orders, expenses can be easily consolidated. This improves purchasing efficiency, with business customers determining a 13% average cost saving when procuring online, compared to their manual procurement processes.
As well as improved accuracy and granularity, this feature helps provide greater control and visibility, giving CPOs a reliable overview of tail spend and related expenses, without having to micro-manage every purchase of printer paper or staples. Moreover, CPOs will have access to a wealth of new data that allows them to make sound recommendations and demonstrate value to internal stakeholders. At the same time, employees with purchasing responsibilities have the freedom to purchase items as they need them, demonstrating trust and building strong working relationships between Procurement and the organization as a whole.
Solving organizational challenges
It can often be a delicate balancing act to manage an organization’s numerous challenges and goals. It’s important for staff to feel valued and respected, to know they are trusted to buy items for their function without having to seek permission for every last pencil and printer cartridge. But it’s critical to an efficient procurement process that the CPO can track and manage these purchases effectively, ensuring the business stays on track to achieve its key priorities.
There are obvious advantages to digital procurement; as Accenture’s Next Generation Digital Procurement report shows, businesses can dramatically improve speed, agility and efficiency with an online purchasing system. Digitizing procurement provides CPOs with a strategic advantage, providing all the information they need to help them future-proof their procurement process while ensuring continued growth and a competitive edge.
So, with the right features that allow the CPO to balance the time and cost savings with the requirements of the wider team, online procurement offers clear benefits. For the Butterfly Patch Nursery, the University of Leicester and Stephenson MAT, a digital purchasing process has been instrumental in helping Procurement to move these organizations forward.
Dave Brittain is Director of Amazon Business UK & Ireland, the business-to-business division of the online retailer. Prior to this role, Dave led the UK Homewares category and was chief of staff to Doug Gurr, Country Manager, Amazon.co.uk. Prior to Amazon, he was a retail industry consultant at McKinsey & Co., a purchasing executive at retailer John Lewis and commercial director, UK and Ireland, for fragrance and cosmetics brand Parfums Christian Dior.