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Procurement challenges for grant-making charities

Ashley Wilcox, Marketing & Communications Officer at the Family Fund offers an insight into developing a robust procurement process and the five main challenges to improving the procurement process.

Historically, the third sector has lagged behind the private sector when it comes to sourcing and managing suppliers and contracts (Charity Challenge, 2013). It can be a struggle to move on from legacy relationships that were previously negotiated when value was not a strategic priority and, in some instances, where resistant mind-sets and legacy arrangements still exist.

But, by placing a greater emphasis on developing a robust procurement process, organisations can secure better deals and reduce the demand on staff time, meaning more money can ultimately go towards helping beneficiaries.

Procurement for grant-making charities can be particularly challenging when purchasing a wide range of goods and services for a diverse range of beneficiaries, and tackling this challenge is at the heart of Family Fund Business Services' (FFBS) offering. Established in 2013 to share Family Fund's grant fulfilment expertise with other charitable organisations, we have identified the common procurement challenges faced by charities, ensuring our model evolves to best serve the needs of their beneficiaries.

Here we identify the five main challenges of procurement, based on our customers' experiences, which can often prevent charities from transforming their procurement, along with an overview of how to adopt an approach to counteract these issues:

1. Limited resource

Limited funding can hamper the development of procurement functions. In many instances there is a limited allocation of resource focused on achieving best value in the purchasing of quality goods and services. Often this task can fall on other functions within the organisation, resulting in a lack of ownership and strategic direction. Focus therefore tends to be placed on maintaining existing contract management and associated time-consuming administrative tasks, which in turn can be a significant drain on limited resources.

2. Size of the organisation

Small and large organisations can encounter different issues that present challenges for their procurement processes. Small organisations may simply not have the necessary resources to allocate to get the most out of their procurement, as opposed to larger organisations that are able to share resources and teams across multiple branches. However, in some instances, smaller charities may be able to be more agile, compared to larger organisations with complex procurement needs that must take into account a diverse range of beneficiaries.

3. Time

Where procurement needs are complex, or require suppliers to deliver at a significant scale, contract management can be very time-intensive.

Time-consuming tasks such as managing multiple supply chains, orders and deliveries, consolidating invoices with numerous accounts and credit cards, as well manually researching alternative options to try and achieve the 'cheapest' price can be onerous. There are also additional demands when errors arise either internally or with a supplier. Coupled with limited resource, this challenge can further impact on individuals' capacity as they try and facilitate these ad-hoc administrative tasks.

4. Lack of strategic procurement

One of the main challenges, irrespective of organisational size, is that limited resources or lack of knowledge make it much harder to apply strategic procurement processes. Focus therefore tends to be placed on maintaining existing contracts for simplicity, preventing opportunities to improve processes and find opportunities to achieve better value for money.

Sometimes this is due to a feeling of loyalty, or a sense of risk at disrupting heavy reliance on existing suppliers, together with a lack of due diligence that stops a procurement contract or relationship from working optimally for both parties.

There can at times be cultural resistance to procuring specific grant items through contracts, as some focus on what they see as a loss of choice and control for beneficiaries. This is even though a procurement contract can assist in meeting funder requirements, evidencing use, and offering better value overall - leading to more beneficiaries helped.

Furthermore, a non-strategic approach means the opportunity to harness purchasing power through bulk buying is missed; supplier prices can fluctuate due to seasonal offers and there is likely to be an absence of holistic expertise and accountability where multiple suppliers are involved.

5. Value for money

Although charities are traditionally focused on increasing their revenue, appreciation of the importance of efficiency, consolidation and rationalisation is becoming more prevalent, not least in response to funders' requirements.

It is important, however that during this drive to increase savings, that quality and value for money are not overlooked. Being cheap and being good value are not the same thing, and the 'cheapest' may not always be aligned with the delivery of good quality outcomes and a high value service.

A smarter approach to procurement

It is possible to address such challenges by adopting a 'smarter' approach to procurement. Framework arrangements, for example, are becoming more popular within the public sector and represent an effective way of purchasing rather than just placing 'one-off' orders.

Consolidating suppliers within a specific supply market is another proven strategy to concentrate buying power, helping to reduce costs without jeopardising quality. Utilising a 'one-stop-shop' partnership can be an effective way of achieving this.

Whilst it is difficult for one single supplier to combine all relevant goods and services for all major market segments, 'one-stop-shops' tend to focus on specific markets where they can offer significant advantages for their target customers. Even if they are unable to fulfil every procurement requirement, they offer an opportunity to reduce the cost and amount of resource needed to manage their procurement process. They can also open up access to increased expertise, creativity and innovation.

By bundling together a broad range of goods and services the amount of interfaces and accounts are reduced, offering a service supported by a single quality system. Adopting this approach also eliminates the need to manage multiple suppliers, all with different points of contact.

Collaborating with preferred suppliers can help create relationships which deliver value beyond just cost savings, recouping wider benefits for the organisation. This includes support for more strategic enterprise regarding sustainability, innovation, risk reduction, diversity, and other key objectives. Harnessing these broader benefits is where the greatest opportunity to gain value can be found.

Conclusion

The future of third sector procurement lies in sharing combined purchasing power for mutual gain and collaborating with other charitable organisations to overcome common challenges.

When considering a procurement strategy, investing time in the short term by implementing a robust framework or collaborative partnership will be beneficial in the long run. Long-term relationships will ensure you work together to deliver and sustain improvements whilst reducing time and costs for the organisation.

References

Charity Challenge (2013) Supply Management in Procurement - The Chartered Institute of Procurement and Supply