UK charities are under more pressure than ever before. The constant demand of operational challenges means few leaders have the chance to assess their long-term strategy. Faced with issues as diverse as Brexit, GDPR, skills gaps and lack of funding, supplier issues often take a back seat. But at what cost?
In the UK, 97% of charities have an income of less than £1m. In addition, fewer than 50% of charities have an income of less than £10,000. Charities are increasingly expected to deliver more for less.
A survey found that three quarters of leaders of small and medium sized charities are spending little time on long-term planning and strategy. In fact, 62% spent just a few days dedicated to planning and strategy in the previous year, while 13% spent no time at all.
What does this mean for the Procurement function? Larger charities may have dedicated Procurement teams, while many others don’t have formalised roles. In this blog, we look at consolidation as an effective way to deliver savings and optimise operational efficiency.
Spend less with smart procurement
Corporate businesses have one objective – to make a profit. The third sector is focused on social wealth, rather than material profit. Yet, non-profit organisations need to deliver their core remit and remain financially viable. In this sense, both sectors require an efficient procurement and supply chain process.
It’s estimated that the sector spends £17.8 billion on goods and services. This equates to 48.5% of an organisation’s earnings. Restructuring your cost base could achieve 5-10% savings, so consolidation provides scope to make a significant reduction. ood costs’ that support the company’s strategic goals. That way, ‘bad costs’ can be cut and the savings redirected to encourage growth.
Consolidating suppliers is a key strategy for the non-profit sector. It goes beyond traditional cost-cutting, and isn’t about accepting lower quality for a cheaper price. Instead, it can provide a transformative approach delivering hard and soft cost savings.
By reducing the number of suppliers in a category, or across multiple categories, charities can improve efficiency and reduce supply chain costs. The challenge is to ensure the optimum price vs. quality balance; working in strategic partnership with a provider to achieve the best fit for your organisation.
Challenging cost and performance
A report from Wax Digital found that 83% businesses ‘don’t really challenge their suppliers adequately on cost and performance’.
Reviewing supplier performance and compliance is time-consuming but essential. Implementing processes to ensure that suppliers are periodically assessed is a must. Multiple suppliers bring more time, effort and workload to manage.
By consolidating to a sole supplier, it’s easier to agree and track SLA’s upfront. Regularly reviewing performance and costs becomes a manageable task which can add real value to your organisation, rather than bottom of a to-do list.
Leverage purchasing power
Many charities find that they have built a large supplier base, with non-core and incidental purchasing increasing the supply base. Using multiple suppliers means that you are unlikely to get best or discount rates, as your spend is spread thin.
Large organisations have the skills and resources to leverage their purchasing power, but find that consolidation helps with reducing – and controlling – supplier numbers. For small/medium organisations, which don’t have the same resources, consolidating expenditure provides tangible discounts and savings.
The benefits of consolidation
A key driver for consolidation is reducing costs. Yet, this should not be at the expense of quality; the strategy delivers many other benefits. Working with a multi-category provider, in partnership to achieve your organisational goals, will enable you to:
>> Reduce the total cost of your procurement
>> Reduce workload across your business
>> Increase quality and compliance
>> Increase control and visibility of expenditure
>> Improve visibility and distribution across your supply chain
A major issue facing the sector includes falling public trust in charities. Procurement can give greater confidence to donors, demonstrating that as much as possible is going to front line services. According to the Lloyds Bank Foundation Report Facing Forward, being as open and transparent as possible will continue to be vital.
Maximising the results from income and donations is a compelling reason to take a fresh look at business supplies purchasing. The visibility that procurement can provide, reducing operational costs and making donations go further, is critical. Consolidation improves this picture, giving greater clarity and making value-added, effective supplier management simpler.
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