Measuring, tracking, agreeing and banking procurement benefits

Smart procurement can save thousands of pounds
Procurement teams can play an important role in releasing savings to help to reduce budgets in higher education institutions or to bank and reinvest. But Jim Reed, who has held senior procurement roles in a number of sectors, argues that there is room for improvement in how universities measure the benefits they secure.

Over the past 17 years I have worked in senior procurement roles, split almost equally between public and private sector and have been responsible for demonstrating procurement effectiveness by collecting and recording savings, benefits, and value and communicating them to senior management.

The benefits of recording, tracking and publishing procurement benefits are as follows:

  • To demonstrate procurement efficiency
  • To incentivise and reward procurement teams
  • To demonstrate the quality of the deal
  • To recognise and bank savings
  • To allow budgets to be adjusted down to reflect the lower cost

Yet, wherever I have worked, I have been conscious that capturing and maximising visible procurement savings and other efficiency measures can easily get out of hand and dominate the task list of buyers.

Log, agree, publish and lock in the savings at the moment the contract is signed, or awarded.

As a result, procurement is often seen as bureaucratic – and desperate – and this lessens the credibility of procurement in the eyes of their customers.

This is unfortunate because the role of procurement teams in generating savings is becoming increasingly important. The tightening financial environment means that if the final price secured by the procurement team comes in below the anticipated budget agreed for the item, project or service, universities may use this as an opportunity to move towards reducing budgets.

So budget owners also have responsibilities in this process. A strong emphasis on demonstrating benefits can drive wrong procurement behaviours, including inflated budget predictions, doing side deals with suppliers and encouraging inflated first bids.

The situation is inevitably becoming worse as universities come to realise that they need to bank the savings and reduce budgets in line with the savings delivered – the last thing that some budget owners want.

So how do I suggest we improve our benefits monitoring processes?

There are a few principles to bear in mind:

  1. Keep the procurement efficiency measures to a minimum and make sure they are relevant and measure parameters that the buying team can really influence – do not agonise over non-influenceable activities such as use of systems; these can be measured at a department level.
  2. Make sure those measures are understood by the procurement team and provide diagnostics for improvement, training gaps and career progression.
  3. Make sure that the measures are understood and agreed by finance officers and the wider university.
  4. Measure and publish savings across the lifetime of contract rather than year one savings.
  5. Get the part of the institution that is sponsoring the procurement to agree and sign off the projected savings, derived from procurement and market analysis at the beginning of the process. Also, get them to accept responsibility for rigorously managing the supplier and contract performance so that those benefits agreed are delivered throughout the contract term.
  6. Log, agree, publish and lock in the savings at the moment the contract is signed, or awarded.
  7. Reporting and agreeing savings and benefits should be naturally a useful part of the procurement process rather than an onerous and fractious “cottage industry”.

Finally, do not let measuring efficiency get in the way of budget reduction or vice versa. If it helps, split the measures you negotiate and agree with university colleagues and concentrate on hard savings – reduction from specified baselines – rather than value added benefits.

Jim Reed
Jim Reed is a consultant with more than 40 years experience of procurement in the public and private sector.