The Real Teamwork Required For Cost Efficient Buying Processes

Business transactions are far more complex than most staff members give the finance team credit for. It seems to be only the professionals in organisations that really get just how complex purchasing can be.

Then there’s the purchasing word itself. There are some professionals with a heavy dislike for the term purchasing; taking the view, rightly so that it is a transactional based buying process, when in reality, procuring products and services takes a whole spectrum of issues into consideration.

Purchasing departments often have buyers appointed to deal with commercial contracts and make all the buying decisions. There comes a point in larger enterprises though when buyers just can’t keep up.

When that time comes, procurement departments are put in place and those staff in there must be team players, because there’s a list of other team members they will need to work well with alongside, with everyone acting in the best interest of the business.

6 Teams involved in the buying process

1.  End users

Every team member must have tools to get their job done, but rarely do they get to buy the tools they need. They need approval from the finance department and then the finance team pass the information to the procurement team to get started with the purchasing.

End users should always be involved in purchasing decisions because they know the tools they need to get the job done.

2.  Finance department

This is the department that the majority of staff thinks has money to throw around. In reality they’re working to tight budgets and juggling figures left, right and centre to stay within the assigned budgets.

To get budgets going further, procurement teams are often in place to ensure they get the best value and services they can for the money going out.

3.  The procurement team

In large organisations, there are buyers appointed. These are people who many think have a whale of a time doing their job because all they do is buy stuff.

Sounds fun!

That’s far from the truth as you may well know, because business transactions require contracts to be put out to tender, procurement compliance, knowledge of commercial contract law and many other factors.

4.  Legal teams

It’s rare for in-house legal teams to be involved in buying processes but it has been known to happen with large contracts.

The public sector especially given the huge amount of sums involved in many projects.

Housing development, and commercial developments where there’s significant oversight of legal compliance required often need the input of either an in-house legal team or a legal advisor on retainer to oversee projects ensuring everything is done above board.

5.  HR departments

In case you’re a student, we’re talking about Human Resources here. This is the team that does the hiring and firing, ensuring that when the firing stage comes, the employer isn’t going to lose a legal battle if an employee takes them to a tribunal for unfair dismissal.

Where HR comes into the procurement process is with regards to uniforms, and perhaps PPE equipment, for which staff will raise concerns with HR who then liaise with other teams to get whatever equipment is required. This department will also be responsible for attracting and retaining top talent within the company.

6.  Marketing teams

When there’s corporate branding required, the marketing team will have input into the buying or hiring process of equipment when it’s going to strengthen and/or promote the brand.

When anything affects a brands image or reputation, the marking team is there to capitalise on opportunities to ensure the business interests are maximised for growth.

In conclusion

With all the teams and members involved in them, it’s easy to see how things become far more complex than they need to be. Buying decisions are not made instantaneously and there are some contracts that can be put out to tender, taking months to go through terms and conditions, whilst always ensuring legal compliance throughout.

That’s the process of the larger corporations, so as you’ll imagine, without the right teams in place, small businesses will have a hard time getting the best value on services bought because they don’t have all those people in-house to work through everything.

If your company is one or more team members short, or lack the specialist knowledge you need to procure the best services at the most cost efficient price - outsource it, because it’s far more cost efficient.

For small to medium sized businesses, it’s rare that you’ll be able to get the best value without input from different teams with collective knowledge and negotiation skills.

Does your company need a specialised cost cutting exercise done?

Call the Procurement Group on 0800 0193 244 or click the link below to contact us.

http://www.procurementgroup.co.uk/contact/

Image courtesy of emaze.com.

Is China Really To Blame For The Collapsing Steel Industry?

On the surface of things, when things go wrong, almost automatically, someone has to be at blame. It’s almost human nature.

If you watched South Park, you’re likely to recall the song ‘Blame Canada” featuring parents taking a stance over what’s wrong with America’s youth; Canada’s to blame. The UK seems to have a South Park approach to blame China for the nose-diving direction the steel industry has taken.

If you take a step back from the current situation the steel sector’s landed in - which is a truly sad state of affairs with a bleak outlook for the future - although there is chatter that tech could revive the UKs steel sector - the demise could probably have been seen a mile off, years back.

It’s an industry that consumes high energy so every steel manufacturer has been at the mercy of energy prices. We all know how those have been going; great for the suppliers and poor for the consumers.

Tack on the green issues, tax burdens and agenda from government to cut carbon emissions, it’s no surprise that there’s not much in the way of help and support to the steel manufacturers.

The steel industry is calling for the scrapping of the ‘lesser duty’ rule in favour of tougher penalties to stave off foreign competitors flooding European countries with cheap steel imports.

Something the UK government is opposed to.

It would appear the UK steel workers must be feeling their message is falling on deaf ears in the UK when they’ve already taken to Brussels to lobby the European Commission. There’s far more our government could be doing right now that would have an immediate impact on the industry and it’s something private sector firms could all be helping with - prioritising local trade in their company procurement policies.

The public sector is highly regulated and has to abide by the Official Journal of the European Union (OJEU), however, in the private sector, there’s less red tape inviting competition.

Compete for quality over quantity.

The entire fall of the steel industry is because of imports and exports. In 2014, the UK imported 687,000 tonnes of steel from China, and overall imports from the EU were 4.7 million tonnes. The UK produces 12 million tonnes of steel per year.

The point is, there’s plenty of steel and the industry has part responsibility for the collapse. While foreign markets focused on quantity with mass production and export, the UK has stuck to quality consistently and that’s came at a premium. Were they actually advertising high-grade steel or just steel? Perhaps some importers were not aware of the quality differences. In any case, the quality option’s soon to be gone.

The worrying aspect of steel imports is the number of things it’s used for. The construction of buildings, homes, hospitals, vehicles, electric appliances and the galvanised steel drums used for transporting oils and other liquid flammables.

It makes you wonder what our new buildings will be like twenty years from now. Especially given the effect climate change is having, with bridges built centuries ago now collapsing under the unforgiving nature of the storms.

Years from now, companies may well look back on their decision to import cheap steel with regret for compromising on quality in a bid to save on overheads.

The Fundamentals Of Corporate Responsibility

Corporate Responsibility (CR) shouldn’t be a stranger to your company. What might be news to you is that there is a benchmarking index. It’s operated by Business in the Community and gives all businesses access to information on the Corporate Responsibility Index.

The index is based from information sourced using an annual survey of members through self-assessment; however, all submissions must be signed at board level ensuring there is director-level involvement and commitment.

Even if you aren’t using the CRI for benchmarking, it’s vital that CR forms part of your internal policies and that those carry over to external partners without conflicts.

That’s when things can get tricky. 

At the very least, if your business doesn’t use CRI for benchmarking against best practices, have the board of directors actually on board in annual appraisals of policies.

Responsibility should always be aimed at the highest level in order to trickle down and take affect across the organisation.

The most important aspects in CR Policies

Sustainability

At the heart of CR should always be sustainability across your supply chain. Everything you buy in and all waste going out. Many spend significant amounts of overheads on waste management, yet, not all corporations have criteria and codes of conduct in place for partnering with service providers.

For sustainability to be practiced, it needs traceability as part of your supply chain controls. What comes in and goes out is best managed with partners in agreement to corporate sustainability policies. This can be done effectively by supplying written materials at the tendering process to all suppliers. Audits can form part of agreements to keep your company true to its internal policies.

Of course, waste is only used as an example as there are multiple external suppliers covering everything from telecommunications to print management services.

There’s little point implementing policies internally if partners are brought in doing their own thing.

Today’s consumers are increasingly concerned about sustainability and in particular with larger organisations as those have a major impact on all resources.

At the very minimum, there are ten guiding principles that should apply to sustainability policies.

Sustainable-Environment.org.uk summarise those below:

“…

1.      Putting people at the centre;

2.      Taking a long term perspective;

3.      Taking account of costs and benefits;

4.      Creating an open and supportive economic system;

5.      Combating poverty and social exclusion;

6.      Respecting environmental limits;

7.      The precautionary principle;

8.      Using scientific knowledge;

9.      Transparency, information, participation and access to justice;

10.  Making the polluter pay.”

There are companies that have heard the consumer voice loud and clear and steered policies directly addressing consumer concerns. One example (of a few) of this is Lush; a company manufacturing beauty products with only natural ingredients. Every product created is accompanied with the employee name that made it, introducing traceability to the process. The policies apply to all partners, so the policies of the brand are the same for external partner policies, ensuring no conflict with internal policies.

Packaging Initiatives

Amazon began to take this issue seriously back in 2008 when they first launched the Amazon Certified Frustration-Free Packaging. Today it’s proudly promoted with the slogan “Eliminating Wrap Rage Since 2008”. We’ve all experienced the “wrap rage” at some point with a product, when you can’t get the thing open. This is perfectly captured in the cartoon video.

If you’re unsure about exactly the roles that each team member involved in packaging initiatives should be doing, scout around job search websites.

A sneaky way to discover how big brands handle packaging…

Go to LinkedIn Jobs and run a job search for Product Engineer in the United Kingdom and you’ll be presented with pages of information all filled with core roles, responsibilities and duties you can use for research to determine how your company has their packaging divisions structured, in comparison to other organisations.

Ethics

Corporations operating without a code of ethics are a disaster waiting to happen. In 1995, Lord Nolan had to spell out The 7 principles of public life:

1.      Selflessness

2.      Integrity

3.      Objectivity

4.      Accountability

5.      Openness

6.      Honesty

7.      Leadership

Naturally, this was set out for the public sector, but it applies equally to the private sector.  With services and products often offered at a global level, many organisations apply the minimum ethical standards in accordance with the International Base Code of the Ethical Trading Initiative.

The aim of the ATI is to promote workers rights, establishing fair pay and trade. Organisations don’t have to be trading globally to implement ETI best practices.

For more information on ethical trading, the Trade Union Congress produced a quick-read Guide to Ethical Trade.

Quality Assurances

In many industries, there are bodies that set out clear guidelines to provide consumers with quality assurances. Some are a legal requirement to be associated with, such as the Financial Conduct Authority or any of the many Care Regulators. For many large sectors though, there are other assurance bodies.

·         Timber Trade Federation

·         Forest Stewardship Council

·         British Toy and Hobby Association 

·         The Lion Mark

·         The Chartered Institute of Procurement and Supply - The Procurement Group is affiliated with the CIPS.

·         British Standards Institution

·         Woolmark

As part of Corporate Responsibility, it certainly helps to bring in outside assistance from organisations leading the way in enhancing industry best practices, applicable directly to your organisation, and helping your policies have weight in the eyes of consumers, partners, and suppliers.

The easiest part is having your procurement team create your Corporate Responsibility Policies. The difficult part is maintaining them as they should be reviewed at annual intervals to ensure partners to your company are in sync and not going to cause embarrassment in the event they’re discovered to be operating in a way that may conflict with your policies.

Responsibility applies equally through association. 

Image courtesy of 1stcall-ltd.com.

The Figures You Need To Know To Negotiate A Better Electricity Deal

For many of us, we get the electric bill and just pay it, or worse still, it is set up for direct debit so we never even think about it. It gets paid automatically and it’s off your mind, until you get around to doing a cost cutting exercise, and you realise it’s time to look at alternative suppliers.

Before you go comparison shopping though, set yourself up for getting a better deal by knowing what makes up your electricity bill.

The five components of your electric bill

1.   Wholesale. This is the raw energy cost to the energy networks.

2.   Transportation. This involves accounting for the network logistics such as the distribution and the transmission to keep the electricity operational.

3.   Levies. This includes environmental factors and the cost of social obligations and government tariffs.

4.   Metering costs. These are the suppliers’ operational costs.

5.   The supplier’s profit margin

What you see is only a fraction of the above though because you only see two figures.

1.   A unit rate

2.   A standing charge

That’s it. Your electric bill shows you the kilowatts you’ve used and the standard running charge that’s applied to keep your electric supply switched on.

Understanding the real cost of each component

It’s easier to explain using a round number for a working example. In this case, we’ll use the notional amount of 10p/kWh per unit.

Using the first set of data, we’re able to break down the constituent parts into four key elements.

Those four costs are:

1.  Wholesale

This actually has a few parts to it itself. It’s primarily the raw energy cost, which equates to 34%. The other one percent extra that takes it up to 35% is accounting for the losses as the electricity makes its way through the power lines into generators to eventually reach the customer meter. It’s actually 35.1% as there’s also an imbalance cost of 0.01p/kWh.

What the imbalance cost is for is because the electricity industry is settled or balanced every half hour. This is because electricity cannot be mass stored. It’s done a supply to demand instantaneously. Not supply on demand – to demand.

It’s effectively known as a type of insurance cost to compensate the network operators for balancing the system, requiring increasing or decreasing volumes produced based on customer usage.

2.  Network

23% of the pricing goes towards transporting electricity to your meter. Remember the 10p/kWh per unit example; well that makes this 22.29p/kWh.

The network makes up the most of this, as it equates to 17%. 5.2% is transmission costs. There are various regional distribution networks, all of which are privately owned. Each is required to publish their tariffs, which allows for suppliers to accurately forecast expenditure and charge customers appropriately.

The transmission cost is directly related to the length the electricity has to travel to reach the customer meter. Despite various regional distribution networks being privately owned, they all pay the same single entity the fees. That’s National Grid.

A third aspect creeps in here, the same as it does in the wholesale cost and that’s the cost of balancing. For the transmission, that’s equivalent to 0.9%.

3.   Environmental / Social

These types of government initiatives account for 9.4% of your electric bill. These are labelled green initiatives and all they seem to do is take the green from you.

a)  First you’ve a Renewables Obligation

This accounts for 6.1% of the energy. It’s a payment to incentivise using generators with renewable energy generation.

b)  CfDs – Contracts for Difference

This came into effect in April last year and does the same as the levy above.

c)   ECO

It does cost to be ECO friendly and it’s not price friendly, but that’s not what this is. ECO is an acronym for yet another levy hiking up electric bills. It stands for The Electricity Energy Companies Obligation. Using the 10p/kWh example, the ECO amount would be 0.25p/kWh. This goes towards those home improvements grants you see promoted for loft insulation etc. 

Consumers are paying for this as it’s built into the tariffs.

d)  FiT – The Feed in Tariff

This is equal to 1.6% and it’s yet another levy imposed to encourage renewable energy. This one focuses on rewarding those using small generators.

e)  The higher distribution cost levy

This is applicable to all areas and it’s designed to support the more remote locations, which would otherwise be subjected to far higher electricity prices due to the cost of transportation to reach the Northern parts of Scotland. To spread the cost, everyone pays 1% towards the higher distribution cost of electricity to remote areas.

4.   Operational overheads

This is the cost involved in getting the electricity to the customer. 12.4% is the amount this adds to your electric bill. This covers the cost of metering and the cost of getting the data from the meters, which is done by third parties now, mostly private firms.

Taking our working example of 10p/kWh tariff, for an average customer using 30,000 kWh per year, would be the equivalent of £372. That’s per customer per year on an electricity bill of £3,000.

Remember back to the environmental aspect? There are cost advantages to suppliers using renewable energy sources so those profits could be higher.

What your electricity bill is really paying for is…

·        35.1% to pay for generators

·        29.7% is the governments slice of the action

·        22.8% go to the energy networks

·        12.4% go to energy suppliers and within that is their profit

Some suppliers have higher profit margins depending how efficiently they operate, but nevertheless, suppliers are where to focus your attention on for better electricity deals. 

Now you know what really goes into generating your electricity bills, use those stats to your advantage to negotiate a fairer deal. Or call us - 0800 0193 244 -and we’ll do the negotiating for you.