Public Sector PurchasingA revenue positive business model

a revenue positive business model

Part 3 – Creating multiple streams of “opportunity”

Public Sector Purchasing

Who Owns Your Supply Base?

Jon Hansen, Procurement InsightsHost, PI Window on Business Show

Public Sector Purchasing

• What are the consequences of not truly owning and/or controlling your supply base?

Public Sector Purchasing

Cause and . . .• Public sector organizations are

being faced with a serious problem relative to supply

base erosion. 

Effect• fewer, quality suppliers are responding

to bids resulting in a phenomenon known as creeping margins.

• Creeping margins occur when the RFP response pool decreases dramatically to the point where 80 percent of the business is being done by 20 percent of the suppliers.

• Canadian Department of Defence consistently paying a premium of a 157% above market price for Indirect MRO parts

• US retailer Best Buy through a misaligned vendor rationalization strategy paid a premium of 23% above the going market rate

Public Sector Purchasing

Cause and . . .• Despite investing tens of

millions of dollars in eProcurement automation, many governments still find themselves in the unenviable position of having to rely on their suppliers to provide intelligence in terms of overall

spend. 

Effect• an increasingly narrow intelligence

gathering funnel through the erosion of an organization’s supply base creates an artificial metrics against which true best-value purchasing verification is impossible.

• the process of obtaining and analyzing historic data is itself an onerous and resource expensive proposition.

• the ability to apply this “mined” data to real-time, real-world decision-making is virtually non-existent.

Public Sector Purchasing

Cause and . . .• The loss of controlling the

method of identifying, developing and engaging one’s supply base is also a problem in that end-clients lose the ability to respond and

adapt to changing objectives. 

Effect• economic impact on the SME sector

within a particular State or Municipality.• a May 20th, 2009 article titled “Cook

County economy would be harmed by health system plan, Commissioners say” referred to the proposed utilization of a Group Purchasing Organization (GPO).

• the question of whether a “healthy” or equitable balance can be achieved between opposing elements is one that should be confined solely to the end-clients’ interests and not the interests of a third-party such as a GPO or vendor.

Public Sector Purchasing

Cause and . . .• The integrity and transparency

of the process is also another important consideration for

public sector end-clients. 

Effect• growing cynicism on the part of

suppliers who on average have to invest between 18 and 24 months before seeing their first government contract.

• There continue to be questions surrounding conflicting agendas associated with third-party control of the supply base.

Public Sector PurchasingWhat suppliers are actually saying . . .

• “I do not think that buyers spend any time at all analyzing RFQ’s . . . once they have sent them out they go directly to the price auction and get on a phone and those who cut the price get the business.”

• “We spend too much time working on RFQ’s . . . the RFQ process chews up dollars and time for something that is going to bring us no return.”

• “It (RFQ’s) will have a negative effect on my business . . . we should charge the issuers of RFQ’s for responding.”

Public Sector Purchasing

Ariba

• Why for example rely on Ariba’s supply network in which there are added costs including a pay-to play structure that presents increased expense for the supplier?

ERP-based (i.e. Oracle, SAP)

• Why use an Oracle or SAP ERP-based supplier engagement platform that may not represent the most efficient and effective way through which a client can identify, develop and engage a dynamic supply base?

Public Sector Purchasing

• Besides being based upon progressively outdated technologies, many of these programs are still tied to expensive licensing and/or support models – even when introduced under a supposedly revamped Software-as-a-Service or “SaaS” cost structure.

Public Sector Purchasing

• The supply base is the most important asset for a purchasing department.

Public Sector Purchasing

• The fact is that the frequency by which governments surrender control of their supply base either through the third-party engagement of a Group Purchasing Organization, or through the utilization of adjunct platforms that make the procurement process too costly in terms of both dollars and resources for many suppliers, have to be closely examined.

Public Sector Purchasing

There is of course an emerging alternative that has been utilized and proven in the real world . . .

Public Sector Purchasing

. . . one that is based upon true SaaS technology platforms in which public sector clients can efficiently and effectively maintain control of their supply base under a government branded flag.

Public Sector Purchasing

. . .through a relatively simple and direct integration within an existing infrastructure, these new platforms address the issues referenced above with the added advantage of providing what I refer to as muti-transactional functionality that opens up additional supplier revenue streams simultaneously.

Public Sector Purchasing

. . . instead of pursuing unilateral opportunities with a single government entity (i.e. state or municipality), the suppliers within the multi-transactional platform can make their products and services available to more than one government, as well as other suppliers!

Public Sector Purchasing

Cause and . . .• The government branded

SaaS platforms provide

multiple benefits. 

Effect• the ultimate “teaming” resource

network in which a 360 visibility into opportunities are available through the awareness of and interaction with multiple stakeholders.

• the real-time intelligence of these advanced SaaS platforms will maximize supplier engagement within the framework of the broader objectives of a public sector organization including economic development.

• delivering significant savings that are always aligned with real-world market conditions

Public Sector Purchasing

Cause and . . .• The government branded

SaaS platforms provide

multiple benefits. 

Effect• expanded opportunity for suppliers to

realize increased revenue lays the foundation for a “revenue positive business model” that will make the government’s management of its own supply base a self-funding vehicle that does not have to tap into the tightening budgets associated with existing deficits.

• Ongoing and verifiable, “best value” decision-making intelligence engaging the broadest range of suppliers, and total economic self-sufficiency means that many public sector organizations at all levels of government will likely be taking a more serious look at how their supply bases are presently managed and utilized.

Public Sector Purchasing

. . . The only remaining question . . . What took so long?!

Public Sector Purchasing

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