Background

Our client is a manufacturer of frozen foods, with 3 sites, based in the UK.  Across all sites, there is a common need for a large amount of non-stocked consumables – items like PPE, uniforms, janitorial and paper products.

With several buyers across the three sites, the company was concerned that a lack of budgetary control was leading to fluctuating/inflated prices – and that there was a not enough visibility around supplier on-time/in-full delivery performance and quality. They also felt there was a significant number of possibly duplicate or marginally different specifications for the portfolio of circa 350 products and that PO errors and the number of deliveries were excessive.  The client also wanted to drive cost reductions.

Approach

The team at Pare analysed the purchase data to identify inefficiencies, reducing the range of standardised product specifications from around 350 to just 131.  This product range, along with a defined set of stringent service requirements was then sent out to tender.

Outcome

As a result of the tender exercise, the supply base has been reduced from seven to just two (reducing deliveries), with both successful suppliers agreeing fixed price contracts which deliver a significant 16% cost reduction.

The introduction of service KPIs provides clear visibility of supplier delivery performance which has led to much more consistent supply and quality.

A formalised price increase review process has been implemented which has not only eliminated PO errors, but also given the business better control and greater ability to forecast and budget for the future.

Do you have a procurement policy outlining your procurement process, spend thresholds and rules? Do teams adhere to it? Do they even know it exists?

A procurement policy is an important pre-requisite for controlling spend. It should be accessible to all staff who have the authority to purchase goods and services in an easily readable format.

Procurement Policy Basics

A procurement policy is a set of guidelines used to establish and standardise the procedure for purchasing goods and services in a business and should cover the following:

• Policy objective. What are the goals of the policy? For example, is it to provide a consistent process for use by all departments? Is it to ensure that all procurement activity is aligned with company goals and values?
• Process overview. The policy should include a high level summary of the procurement process detailing the steps involved (a flow chart is often useful here).
• Procurement thresholds. Spend limits for staff and the criteria for the type of procurement activity required, e.g. number of quotes, tender, etc.
• Tender process. The policy should include an outline of the formal tender process for purchases that meet the established criteria.
• Sustainability and diversity statement. Include a brief overview of goals and initiatives.
• Ethics and anti-bribery (as above).

Pare can support with the development and delivery of a procurement policy to ensure a consistent buying approach across the business.

A valuable client of ours is a UK based food manufacturer who have a strong procurement team overseeing the purchase of raw materials and packaging.  The management of in-direct procurement is outsourced to Pare.

One recent project we completed saved them £48k per annum on their PPE and janitorial spend (a saving of 18%).  That’s £48k to their bottom line!  As part of the process, the supply base was reduced from 8 to 2 and the product range was completely streamlined and standardised, thus making the ongoing buying process easier to manage.

What are the other benefits of outsourcing?

• No costly recruitment fees
• No ongoing costs of employment
• No direct employment headaches
• Additional/short term resource to solve immediate problems
• Flexible contracts
• Focus – complete dedication to projects requiring a quick turn around
• Expertise
• Specialists, not generalists
• Removed from internal politics
• Fresh perspective
• No learned “bad behaviour” from within the organisation

The list is endless!

When was the last time you carried out an in-depth review of your suppliers?

We are all aware of the supply chain challenges that businesses are faced with.  In light of these, is your business looking to resurrect a more local supply chain to re-direct risk across a broader supply base?

Historically, sourcing activities were far-reaching, in many cases due to lower production costs overseas.  However, recent events have caused businesses no end of disruption due to the inability to get hold of materials, thus wiping out any costs savings from sourcing abroad.

Are procurement projects a priority in your business, or do they frequently get put on the back burner in order to deal with more pressing issues?

Should these projects be deemed less of a priority when Procurement is one of the key functions to drive improvements in a business’s profitability and cashflow?

An outsourced procurement partner can ensure that these projects are consistently delivered.