A study conducted last fall by the TaxPayer’s Alliance found many pricing inconsistencies within the British government. What does the British government have to do with your US small business? It can bring to light some areas that may be neglected or could be improved upon. Let’s take a look and see what we can learn about pricing inconsistencies that may be plaguing your business.
First, let’s examine a couple parts of the study. You’d think that the government buying something as simple as basic A4 paper for its various offices would find some fairly consistent arrangement, but that was not the case. The Department for Business, Innovation and Skills paid the most at £12.43 per box of 2,500 sheets. The Department of Health, the best performing department, bought boxes of paper for £8.93 each, saving £3.50 per box over the BIS. The remaining departments fell somewhere in the middle with the majority paying well over £2 more per box of A4 paper than the Department of Health.
Energy procurement reflected a similar story among government departments. The Department for Business, Innovation and Skills also paid the most for its energy costs with its average hitting around £110 per megawatt hour. The best performing department, the Ministry of Defense, paid a mere £34 per megawatt hour of energy. Some other things of note: The Department for Transport, the Department for Education and the Home Office all paid over £50 per megawatt hour more for their energy than the Ministry of Defense.
If you have a large company you may find similar inconsistencies within the various departments. If you are a small business you may find pricing inconsistencies between orders or you may also have smaller one or two-person departments who tend to favor one supplier while others order from yet a different supplier with overlapping products of different prices. Look for inconsistencies and explore how you can even out the inconsistencies to your financial advantage.
Thought it would be fun today to take a look at the top 4 blog articles to date. The qualification to be considered in the top is based purely on page views. So in descending order here they are:
4. How to Prevent Procurement Fraud, Part 1 (7/19/2012)
3. The Kraljic Matrix for Procurement (3/26/2013)
2. Tactical Procurement in Your Organization (10/2/2012)
And the most popular blog article we’ve posted to date….
Over the past few years of economic turmoil worldwide there has been a fair amount of discussion regarding the purchasing industry. When times are tough people need to increase income or reduce spending so a lot of focus and attention has been given to the procurement process and reducing spending. Yet even with the spotlight on the procurement industry, there still seems to be a gap in the talent due in part to the reputation of the industry as unattractive, maybe even dull and boring.
If you talk to various professionals in the industry you will often find one of two situations to be true. One is that they sort of stumbled into the profession and weren’t actually looking for a job in the industry. The other is that their preferred career choice hit a dead end. They may have been laid off or simply were not in a position to advance in their professional goals.
Why is this? With this undesirable stigma that seems to be attached to the industry college graduates don’t look very closely or may not even know about their options in this field. Career services don’t heavily promote the industry and other options such as finance, law, technology or marketing are far more attractive and exciting. They want to have an exciting career to brag about and build a future on.
So how do you change the perception of an entire industry from dull and boring to exciting and lively? It starts with people in the industry being excited about their work. Quit treating it like your backup career and put your all into as your primary career. Communicate better with college career services so they understand the more exciting aspects of a career in purchasing. Creating fast, flexible supply chains can be just as exciting and rewarding as other more well known career objectives. Utilizing innovation to improve revenues and margins can be a fun mix of both finance and technology.
Have you ever heard a training on the power of one person to change the world? Only in this case instead of changing the whole world we want to change the perception of an industry. And instead of one, we have thousands upon thousands of people in the purchasing industry. Imagine the power if just portion of these work together? Will you be one of them?
Small businesses have basic needs similar to that of any living being. People need air, water, and food to survive. Small businesses typically need water and energy in order to operate. Energy can take various forms including electricity, gas, and alternative energy. When things are considered “essential” it is easy to overlook it as an area for possible cost savings. The interesting twist is that with savings on things like water and energy you are often making an improvement in the environment as well. So you have much to gain and almost nothing to lose by broadening your view on procurement to include basic necessities like water and energy.
Taking simple efficiency measures can yield big savings results with regard to water. You can bet your employees act differently on the job than at home where they pay the bill. It’s not always out of malice or to cause problems, but often just because they aren’t paying the bill they don’t think about it. Encourage employees not to leave the tap running on full strength when washing their hands, cleaning dishes after lunch in the break room, and any other water use that is typical in your office. Create your own version of a public service announcement to help employees start thinking about water use differently. Employees are also your first defense against plumbing problems. If they see a leaky faucet or toilet, be sure to have a process for them to report these problems instead of just shrugging it off as someone else’s responsibility. Follow that up with better maintenance particularly when plumbing issues are reported. Timely attention to problems will minimize the financial impact.
Finally, you’ll want to take ownership of the water budget. Examine it and monitor it regularly. If you have different meters or different locations make sure to hold each one responsible for the water use for their portion of the business. If they know it matters, they will make it matter. Does that make sense? If leadership put emphasis on water use, then middle management and ultimately employees will all start to do their part.
Energy bills are often one of the most dreaded of all expenses by a small business. Here are some common sense tips, some of which you probably do at home that can help reduce energy costs. Leaving electronic devices plugged in, even when not in use, are a huge energy drain. You’ll want utilize power strips that make it easy for each station to unplug their computer, printer, fax, lamps, and pencil sharpeners (or whatever else they have plugged in) each night before leaving. At a minimum, adjust settings to put everything into energy-saving sleep mode while still allowing pertinent programs to remain open. Install an energy-star rated programmable thermostat that can be set to automatically adjust temperatures in the office during the workday versus unoccupied times in the evenings and weekends. Sure it can be done manually, but this is one less thing you need to concern yourself with. If you feel like the office parent, constantly nagging your children, ah-hem, employees to turn off the lights when they leave a room consider sensor lighting that turns on when you enter and off after a period of no motion is detected.
Regular maintenance and cleaning can also make a significant impact on energy use. Crippled or broken HVAC systems consume energy like a black hole to try and compensate and keep up. Set up an annual check by a professional and make sure to keep replacing filters on a regular and consistent basis. You will also want to check your office refrigerators regularly as well. Maybe you have several in different parts of the building. Check gaskets, coils, and dust buildup to make sure these are running smoothly and efficiently.
A slight change in perspective on the procurement of water and energy for your business can add up to a significant amount of savings and in the process help your business decrease its environmental footprint.
Let’s face it, for-profit companies are in business to make money! That generally includes the sale of some type of product or service. Whether public or private, there is someone or a group of people to which the company must answer. It could be a board of directors, stockholders or a business owner, business partners, or even a family owned business. They all want to know one thing: how are you going to make them more money. Obviously there are other concerns and issues, but the bottom line is the bottom line. They are involved in the business to make a profit. There is often an unspoken (or even spoken) pressure to increase sales in order to increase profits. Consider that there are other options available to every company to increase profits without increasing sales including the proper use of efficient procurement.
When times are good, many companies get a little relaxed in their approach to the business. Activities are a little more loosely monitored or not at all. There doesn’t seem to be an end to the money and spending goes out the door quickly with easy approval. Riding on momentum and adrenaline sales are plentiful. If there is a need for a big one-time expenditure the troops are rallied and they work to land a new account, have everyone sell 2 more widgets each, or some version of an increase in sales to cover the cost of the project. Fear and caution are thrown to the wind.
When times are bad, many companies have the opposite approach and tighten down everything. How can we cut costs? Save money? Spending slows to a crawl and approval becomes very difficult. Hiring freezes are followed by temporary holds on raises followed by voluntary layoffs followed by mandatory layoffs. For most companies the payroll/personnel is one of the biggest, if not the biggest, expense to the company. If profits are falling there has to be a cut to keep the necessary people happy. Without the cash flow there is no way to maintain the payroll and something has to be done to bring income and expenditures back into balance.
Instead of rocking back and forth like an out of control pendulum, taking a more balanced approach that sustains you through both good and bad will be far more beneficial to everyone. One of the ways to do this is to constantly be analyzing and working on a more efficient procurement plan. It could mean something large like upgrading your system or a series of small changes and even indirect changes. Look everywhere for ideas. The people right the middle of the mess are often your best source of ideas. Don’t limit this to company executives or even specific committees or task forces. Keep eyes and ears open. Some may be afraid to voice their ideas thinking their idea is not important or creative enough. Whatever you can do to create an environment of creativity so no one is afraid to share their idea including rewards for implemented ideas will go a long way. Over time, these improvements will create an efficient procurement system resulting in savings year after year with large payoffs even when sales are down. Don’t lose focus. You can do it!
In our increasingly global economy, it is easy to acknowledge that the economic conditions facing small businesses have a tremendous impact. Declining or stagnant economies have caused many businesses to tighten the belt. They are looking at spending, cost-cutting initiatives, and nearly anything they can find to improve the bottom line. Even while economies are struggling, technologies are still advancing and can have a direct economic impact on small businesses. Are you considering technology, or specifically procurement technology and how this can be an economic force in your business?
Still unsure of the power of technology to make an economic impact in your business? How about a brief history lesson? According to Harvard Business School, Working Paper No. 08-093 titled “The Importance of Adopting New Technologies” the authors (Diego Comin and Bart Hobijn) it places tremendous importance on new technologies for the overall economic health of entire countries. To make the case, they examined the rapid growth of Japan after World War II and other Asian countries like Singapore, Hong Kong, Taiwan, and South Korea in the 1990’s. Their growth was directly tied to the acceptance of new technologies like the Internet and new steelmaking processes. By comparison, many Latin American countries were far slower to incorporate these technologies during the same time period and saw an economic decline. The authors also took a broad look at nations over the past 200 years and the variances between those adopting new technologies like the steam ship and more modern technologies like the cell phone. Those who adopted them more quickly saw a widening gap in per capita income compared to those who were slower to adopt the new technologies. Many developing countries today are still trying to catch up to more developed nations.
If you take a narrower look the adoption of new technologies comes largely through small businesses. Have you adopted new procurement technologies for your business? Believe it or not, there are still businesses out there that use a paper-based purchase order system. Are you one of them? Or maybe your business considered itself cutting edge at one time and implemented what is now considered an archaic purchasing software system. Maybe it hasn’t been updated in years and is becoming increasingly difficult to use and you are wondering if you might just be better off ditching it and going back to a paper-based method.
Our society is constantly changing and it may be time to reexamine your chosen procurement methods. Cloud-based procurement technology allows you to take advantage of all the latest technologies by allowing you to incorporate procurement processes into your business from anywhere at any time. By utilizing cloud-based technology you have the latest advancements at your fingertips. System updates are easily added without all the requirements of having your own in-house IT team or paying exorbitant fees to have new modules custom made for the changes in your own business.
As you can see, whether you have a paper-based purchasing system or even a dated software system, new technologies can make conducting procurement operations for your business decidedly smoother and have a great economic impact. If you have questions about cloud-based purchasing please let us know.
Current trends across multiple industries are that of “going green”. When you hear this phrase what may come to mind are recycling programs, alternative energy sources such as solar power, clean water initiatives and more. Whether or not your company has begun to implement going green policies you should be aware it is something that could be impacting your suppliers and your supply chain and your cost of doing business.
Many companies are cognizant of the fact they need to project a current and relative image. Part of that is connecting with green initiatives. This requires some dialog and thought. Otherwise, jumping on board for the sole reason of being able to make the proclamation they are a “green’ company may in fact have a negative effect on the profitability of the company and to its stakeholders.
On the other hand ignoring the green trends and the possible long term ramifications of staying the course may bring a company to the same negative effects on the profitability of the company and to its stakeholders.
Perhaps the optimum path for a company would be a more middle of the road approach where they create or adapt more effective and sustainable procurement procedures that have a positive impact on the environment thereby giving them a more environmentally friendly image while minimizing the impact to the bottom line.
One possible consideration in the procurement process is becoming more strategic in the management or planning elements of procurement and less reactional. In other words, anticipate needs and pool vendor resources. Small niche suppliers working in concert with larger suppliers may benefit the small supplier through strategic alliances with the larger vendors and simplify the procurement process for the company’s buyers as they will only need to work through the single large supplier. Such alliances may reduce the cost in man hours and provide a more affordable means of delivery by pooling orders. This equates to less carbon emissions and an avenue that benefits all while contributing to a greener image. The company would play the role of “matchmaker” through the introduction of the smaller niche supplier to the large vendor.
Effective procurement processes that evolve into becoming more strategic can help achieve cost saving objectives across all the parts of a given business. The procurement team that works with all departments of the business can maximize the cost opportunities and elevate the best values. Continued use of cost-saving initiatives in line with “green” thinking over time will help reduce administrative costs and improve efficiencies.
Doing nothing is not really an option in building or managing a procurement system that is both effective and sustainable. It is important to have a sense of urgency to the transformation of a “greener” image yet not be hasty. Celebrate the successes of building vendor alliances that make your greener, reduce costs, and help all involved.
If you are involved in the purchasing industry then you see a lot of money change hands. It could be small amounts or even millions of dollars. Relationships develop and contracts are awarded. In many cases, companies are more than willing to go above and beyond to gain your business. It’s a common business practice to show your dedication to the project and willingness to take care of your customer. They may also just want to show you thanks for the business. Or so it would seem. When does a gesture, gift, or payment cross from a necessary business-expense to generate good-will into the darker area of bribery?
What about the business philosophy to wine & dine your customers? In some industries that is the name of the game. For example, let’s go outside the traditional purchasing industry and look at meeting planners. Meeting planners can bring hundreds or even thousands of people to a city. The revenue generated through hotel, food, and recreation is an essential part of that city’s budget. The local Convention & Visitor’s Bureau or the facility manager will often go to great lengths to get that business for their city. They may pay for the meeting planner’s airfare, hotel, food, and even some entertainment to make a great impression and show what a great choice their city or venue would be for the meeting.
Or consider high-level negotiations between two businesses working on a deal to sell a company, merge companies, or simply to find a mutually agreeable position that would allow both companies to profit. Do you picture limo rides from the airport? Golf at the area’s nicest resort? Maybe tickets to a concert or ball game in town that week? The lengths people go to woo another in pursuit of their own success can be astounding. But again, where does it cross from Good-Will to Bribery?
Things get really sticky when working overseas. Bribery has become a huge part of the international scene. Bribing individuals or companies to win deals or slide through local regulations has almost become the norm in some parts of the world. In order to do business in these areas, some may argue that you have to use bribery or your company will be rejected. So now you find yourself in a moral quandary. You take little baby steps and justify your actions because everyone is doing it or because your company would have zero chance at success without it, or so you think.
The Anti-Bribery Convention was adopted in 1997, but is only actively enforced in seven countries: Denmark, Germany, Italy, Norway, Switzerland, the UK, and US. Criminal prosecution does happen and can devastate a company. So it is important for each company to set the tone from the top levels of management that bribery will not be tolerated in any form. The rules must apply in every situation and in all countries across the world. Purchasing departments who often interact with companies on a daily basis can help by ensuring they do their part in upholding a high ethical level in all their relationships.
So what do you think? In countries where government corruption is rampant, should business be exempt from bribery laws in order to swim with the sharks?
Since 1985 Bellwether’s web-based purchasing software has been the preferred choice for 1000’s of purchasing professionals who need to control current spend and simplify purchase order processes. Here is a brief introduction to Bellwether’s powerful, easy-to-use web-based purchasing software.