Increase savings with strategic e-sourcing

Bank bailouts, a deep recession and an emergency budget – the past two years have been turbulent for public sector spending and the economy isn’t as bright as it once was.

The budget deficit is expected to be £155bn this year, with total national debt at £903bn. As the coalition government puts measures in place to reduce the budget deficit, this is having a direct impact on public sector spending.
The 2009 Operational Efficiency Programme found that the public sector has the potential to become an extremely powerful purchaser, with over £175bn spent on external goods in 2008/09.
It also found that it is realistic to achieve a total of around £6.1bn of annual value for money savings by the end of 2013/14 through greater uptake of collaborative procurement; of this, £5.7bn could be delivered by the end of 2011/12.
If we put figures to one side and look at reality, public sector procurers will have to purchase with less money and still make savings. Public sector procurers can play a vital role in making important savings. The question is, how can this be achieved?

The reality
Procurers need smarter purchasing, which can be achieved through implementing esourcing and contract management software, and buying collaboratively.
In the past 18 months, the government has been vocal in its desire to increase uptake of esourcing and collaborative buying.

The Glover Report, published by HM Treasury in November 2008, recommended that the government should issue all tender documentation electronically by 2010 and this should be kept as brief as possible. Business should be permitted to tender electronically for all public sector contracts by 2010; no “paper only” tenders should be required after this date, with an ambition for all tenders to be electronic by 2012.
David Cameron and the government coalition has written a letter to government departments setting out plans to open up government data to the public to hold politicians and public bodies to account, reduce the deficit and deliver better value for money in public spending. As part of a new set of standards for transparency, a number of specific commitments to open up government data and increase transparency were announced.
Local and central government are being asked to publish all items of spend over £500 and £25,000 respectively, online from January 2011 and November 2010, and new contracts and tender documents to be published in full from January 2011.

Benefits of e-sourcing
Implementing an esourcing and contract management solution can bring a variety of benefits to the public sector, mainly improving procurement efficiency and reducing costs.
Esourcing significantly reduces the supply management costs by automating, simplifying and accelerating source to procure processes for goods and services. Esourcing solutions should increase bottom line cost savings delivered by sourcing and procurement functions by focusing on strengthening supplier relationships and streamlining tender processes.
Greater savings can, however, be made by public sector organisations collaborating in the procurement of goods and services. This enables the organisations to drive prices down by providing suppliers with greater quantities enabling them to reduce margins. A good example of collaboration is to be seen in the set of reverse auctions conducted by the OGC over the past months, which have enabled disparate public sector bodies to make savings in obtaining common goods.

Overcoming political issues
The difficulty in collaborating is that political issues have to be overcome and by getting together with others there may have to be compromises on the exact specification between organisations. Therefore, common sense must prevail. The leading esourcing applications will enable each organisation to take part with specific roles in the procurement and evaluation process enabling everyone to take part in the sourcing process.
The process can be started by the use of contract registers across regional groups to identify common goods and services and when contracts expire, gathering the common requirements and undertaking the sourcing process.
Collaboration has been proven to work but to do so it needs the initiative to be taken by regional groups, of which there are many, to gather organisations and together drive the process forward.
In itself this may also be difficult as the independence of public sector organisations may prevail but there are major savings to be had through the collaboration process.
The National Audit Office and the Audit Commission have called for public bodies to work together much more effectively than they currently do to maximise savings from procurement activities. Effective supplier sourcing can have a direct impact on the cost, quality, and performance of the tendering process.
A comprehensive esourcing solution helps to identify and qualify suppliers, negotiate best value agreements, derive the optimal award allocation and drive product collaboration, process standardisation and knowledge management across the sourcing solution.
A solution increases efficiency by reducing buyer time in the tender process. Getting best value entails creating competition between suppliers qualified to provide the goods or service. Increasing efficiency in the procurement process involves streamlining the process and being able to undertake the process in a correct, repeatable way.
Taking government directives into consideration when choosing a solution, there are several aspects that should be considered when looking to the market.
A close and open collaboration between the private and public sectors has been strongly encouraged by the government to ensure economic development and improve competition. In the past, the Byatt Report emphasised the need to make contract opportunities available to a wide range of suppliers by posting them on public sector websites. The more recent Glover Report reinforced the government’s desire to strengthen and broaden supplier involvement and collaboration.
The obvious way to notify suppliers about potential opportunities is to encourage them to register their areas of expertise and to make contracts available to both registered suppliers and the open market.
An opportunities notice board lets you say goodbye to the traditional, labour intensive way of posting and advertising contract opportunities and RFQ’s.
Benefits include:
•    Cost savings by eliminating
    traditional advertising
•    Saves resource on managing
    supplier cold calling
•    More competitive pricing as opportunities
    are open to all relevant suppliers
•    Wider supplier choice

Electronic Tendering
The drive for increased efficiency and cost reduction in the procurement process is a high priority agenda item for government and all public sector organisations.
A secure, auditable procurement environment can help both buyers and suppliers maximise savings through a fast, flexible and sustainable electronic platform. The electronic tendering process is also a major contributor to environmental improvements by completely removing the need to print and post documents, saving time and money.
Benefits of etendering include:
•    Encourages compliance to the
    organisations procurement process
•    Measurable ROI
•    Improves productivity

The pressure is growing on buyers to demonstrate both quantifiable and intangible savings especially in the current economic downturn. The cost savings are to be accompanied by quality of service and goods as well as fair contract terms, and there is a strong drive for best value matching of qualitative returns with price.
A proven method of achieving this is to undertake a reverse auction at the end of the buying process, where the best qualitative results can be used in conjunction with price to achieve best value.
In March, the Office for Government Commerce’s Centre (OGC) for eAuctions published its Forward plan for eAuctions. The OGC hopes that eAuctions will save the public sector up to £270m by the end of 2011/12.
Benefits embrace:
•    Efficient, open and transparent negotiations
•    Encourages competitive pricing
    in an open market
•    Enables the use of qualitative measures
    properly weighted along with price

Contract Management
Equally important in the process is contract management. The continued drive to increase efficiency and reduce costs in the public sector has created a need to improve contract management and provide better visibility into supplier performance. The need to remove costly contract overruns and ensure ongoing contract and supplier agreed objectives has become mandatory. Ineffective contract management can lead to reduced savings, increased risks and lack of compliance.
Contract management gives the buyer the ability to manage a contract through to completion, managing the cycle from business requirement through advertising and sourcing to management of the contract.
A contract management solution, which integrates with an esourcing solution, should provide full visibility into contracts, enhancing compliance and reporting whilst streamlining the contracting and administration processes.
Benefits of contract management include:
•    Ability to manage a contract and its
    suppliers through the total life cycle
•    Improve contract visibility
•    Reduce contract cycle time

Further considerations
Implementing an esourcing and contract management solution can be relatively straightforward. Many solutions on the market offer a Software as a Service based solution, which can be accessed from anywhere in the world with a web browser and internet connection. A hosted solution requires no additional in house IT infrastructure and reduces implementation times.
In times of reduced budgets and spending freezes on ICT, it may be challenging to find funding for a solution. The government’s own measurement of the savings gained by merely issuing tenders electronically is estimated at £1,000 per tender. This does not include the benefits gained from additional competition or carbon footprint saving.
Esourcing providers may also offer a SaaS based payment plan; with no upfront costs it may be an easier payment option than having to allocate a higher capital budget.
Look at the market thoroughly. There are a number of providers, some on framework agreements, others not. If you are making an investment, it’s worth shopping around to get the best solution for your needs.

Please register to comment on this article