Reducing the cost of public sector procurement

How online collaboration can stretch your budget further

When the Audit Commission looked at ways that local authorities could deliver better value, one suggestion it made was that councils take a fresh look at the way they procure services and products.

It’s advice that has resonance in much of the public sector. As you’ll learn later in this post, London’s 33 local authorities spend over £100m per year on acquiring and maintaining around 6,000 commercial vehicles. That’s just a drop in the ocean of their combined spending.

So each percentage point of discount they collectively negotiate through better procurement processes can deliver huge savings to the public purse.

And with savings like those, just imagine what better procurement could do for central Government departments, the emergency services, armed forces, housing associations, NHS and health services, executive agencies and others!

The key to cutting the cost of procurement is to order products and services in greater bulk. The more you order, the lower the cost of each individual product or service.

Different public sector organisations have different procurement processes, but they’ll generally fall into one of these broad categories.

See which one best applies to you.

• Disjointed procurement. In this scenario, individual departments within an organisation drive procurement. For example, council departments such as Housing, Waste Management, Education, Customer Services and others might issue procurement requests for stationery items on an as-needed basis. As a result, the authority can only buy the amount of stationery needed by a department at any given time — meaning you can’t use the stationery requirements of the whole local authority to leverage better bulk buying discounts.
• Co-ordinated procurement. In this situation, procurement is driven centrally within an organisation, allowing an organisation to negotiate a larger bulk-buy discount. For example, individual departments may be required to give notice of stationery requirements, allowing the authority to co-ordinate them and negotiate a larger discount on the combined order.
• Partnership procurement. This is the ideal. Different public sector (and potentially private or third sector) organisations combine forces to share requirements and negotiate the largest possible discounts. For example, a county council could collaborate with borough councils, a county police force, NHS Trusts and others to share requirements and negotiate high bulk-buy savings. Imagine how those organisations could combine to get the cheapest possible price on all kinds of products and services — from photocopier paper and gloss paint to cleaning and catering services.

Issues with partnership procurement
Whichever part of the public sector you work in, the strategic route to reducing your procurement costs via partnership procurement is relatively straightforward.

1. Ensure purchasing is centralised within your organisation, and co-ordinate requirements so that the same products and services for different departments can be procured at the same time.
2. Once you have efficient centralised procurement processes, identify opportunities for inter-organisational procurement with compatible partner organisations.

Traditionally, however, organisations have shied away from sharing procurement with others in the public sector. There are a number of reasons for this, including:

1. Bureaucracy. Co-operation with procurement requires a reliable, shared procurement system. When ordering relies on emailed or telephoned requirements, it can quickly become bureaucratic and inefficient. If it’s easier not to use a procurement system than it is to use it, staff won’t adopt it properly.
2. Expense. Creating and sharing a procurement system can become expensive. The more it relies on individual people co-ordinating calls and emails, the more additional staff you need — and this can eat away at any bulk-buy savings you may negotiate.
3. Speed. If the time it takes to share and collate buying intentions is slow, you can miss out on windows of opportunity — such as time-limited discounts.
4. Past buying data. Not all traditional procurement systems give you fast access to historical buying data, which can be crucial in helping you negotiate new terms with current and potential suppliers.

For partnership procurement to succeed, therefore, you need a fast procurement system that simplifies buying, is easy to use, keeps expense to a minimum and gives you access to historical buying data.

Luckily, there is a solution that meets all those criteria and is increasingly popular within the public sector — it’s called online collaboration.

Collaborative online procurement
If you choose an online collaboration system to aid procurement between organisations (or simply within your own organisation), it solves all of the problems we’ve just identified and brings you both efficiency and savings. These are just some of the ways how.

1. Simplicity. Every department in all partner organisations shares the same online workspace. They use it to notify central buyers of their buying intentions — allowing the buyers to plan purchases and negotiate maximum discounts. For example, one department may intend to buy fluorescent jackets in March, while another may plan to do so in April. By bringing the latter purchase forward to March, the buyer can negotiate a larger bulk discount. And because all buying information is available in the same space, there’s no need to spend hours collating or chasing it up.
2. Economy. Because online collaboration simplifies the administration of procurement, you don’t need to invest in significant extra staff resources. And if you choose an online collaboration tool with a low per-user licence, rather than one with an expensive contract, procurement savings will pay for it many times over.
3. Speed. Every time a buying intention is posted, relevant users in all departments are notified immediately — ensuring they can respond with any similar buying intentions that could help drive bulk buying prices even lower. In this way, online collaborative procurement becomes a virtuous circle.
4. Archived buying data. Online collaboration tools can keep all buying information centrally, and keep past buying activity archived for future reference. This allows you to quickly discover what past buying levels have been — important for negotiating initial discounts with new suppliers.

Partnership procurement in action
Do you remember the commercial vehicles that were bought by London local authorities?

These councils use a service called Fleetcol, which co-ordinates their fleet buying by using online collaboration software. By sharing their buying intentions, they can negotiate discounts of up to an additional 10% from their suppliers.

With that £100m combined budget for vehicle purchasing and maintenance, that’s a potential six-figure benefit. All thanks to software that costs pence per user, per day.

Can you imagine how you could use it in your organisation? For more ideas, examples and ways of using online collaboration to do more with less, download the free guide below.

Coming up next: Cutting public sector staff costs and increasing productivity

Can’t wait? Download our free guide below — Doing more with less: 8 key issues faced by public sector managers — and how to solve them.

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