Can buying locally help organisations meet the procurement challenges 2017 is likely to bring? Laura King investigates.
With the current political situation in Europe and America, 2017 is proving itself to be a year of uncertainty. Such uncertainty can mean that companies look for short-term efficiencies and cost savings from their procurement team. Although these strategies can help initially, they will often be to the detriment of the organisation’s long-term needs.
The good news for environmental professionals is that sustainable procurement often goes hand in hand with austerity measures. Cost reduction translates to improving resource efficiency — ie only buying what is needed. Getting more for less translates to innovation — ie working with suppliers to transform operations to find new, improved and more sustainable ways of doing things.
Indeed, pundits are predicting that several of the trends in 2017 will be linked to more sustainable procurement including:
improving transparency in the supply chain to reduce the risk of negative publicity
cost cutting in logistics as fuel prices continue to be volatile
demands from customers for more durable goods and services.
Using local suppliers is another area that is seeing increased popularity as consumers move towards a preference for locally-sourced goods and services. And buying local is not just beneficial for customer satisfaction; it can also help with many other challenges organisations might face in 2017.
How can buying locally help?
Buying local often, but not always, goes hand in hand with buying from small and medium-sized enterprises (SMEs). Using SMEs can offer many benefits, including the following.
Many SMEs will operate in niche and specialist markets. As such, they are more likely to adopt new technologies and might be more prepared to innovate than larger suppliers. Furthermore, a contract with an SME could form a large part of its client base. As such, it has the potential to be worth considerably more than a similar contract to a large supplier often meaning that a smaller, local company is able to offer a more bespoke service. All of this can help innovation in your supply chain and means that you get the best from your investment.
Reduction in transport and logistics
“Local” will mean different things depending on the nature and scope of the business. However, in many instances, local will mean lower transportation, logistics and travel costs. It’ll also mean less exposure to changes in import/export duties or changes to trade agreements or exchange rates. This is going to lead to cost savings, as well as improving environmental credentials.
Reducing risk and increasing transparency in the supply chain
The more global the supply chain, the harder it is to manage transparency in the procurement process. Risks are particularly high when working in countries with different standards for environmental and social protection. Using local suppliers will reduce this risk. Having a broader range of suppliers will also help manage risks around supplier diversity and operating with a small pool of suppliers.
Good corporate social responsibility
Customers have cited a preference for companies that demonstrate good corporate social responsibility (CSR) and for those that “give back” to their local communities. Buying locally provides opportunities to build relationships within the communities the organisation operates, as well as helping to meet any objectives for operating locally.
A local provider is much more likely to be able to offer a flexible, on demand, service than one located in another part of the world. Supply chains can be shorter, offering greater reliability. They are also more readily available for contract management meetings or other local requirements such as site visits.
How to approach buying locally?
Look at company strategy
Sustainable procurement — with local procurement as a facet of this — is part of the overall culture of the organisation, and so needs to be embedded in the business plan and strategy. To make sure it has its place, the first step is to look at where sustainable procurement can be used to the benefit of the company. Some areas to look at might include: reducing risk in contracts, improving socially responsible purchasing or bettering environmental credentials.
Review the current procurement strategy
The second step is to review the procurement policy. There are a few questions that can be asked at this stage.
Is there the potential to source locally? Where are areas with high potential?
Are there the resources to source locally (such as a knowledge of local suppliers)?
What are the internal barriers to sourcing locally?
How do we manage the risks (perceived or actual) of sourcing locally?
Review barriers for SMEs
It is possible that there are barriers in the procurement process that might make it difficult for SMEs to respond to tenders.
For a start, SMEs might not be aware that the contracts are available. Second, the size and requirements of the contract might be off-putting. As with any organisation, managers of SMEs need to decide on the best use of their time for developing their business, and so if a contract is too broad, comes with onerous processes, or has contractual requirements that are disproportionate to the job, there is every chance that SMEs will not apply.
Practical ways of encouraging SMEs to tender
Once barriers have been identified, there are often solutions that can be put in place to encourage SMEs to tender.
Advertising: Advertise any opportunities locally and, if possible, find local suppliers and advise them of the contract. It might be useful to engage with local business groups or trade associations to find out how best to contact local businesses. Using third-party suppliers or intermediaries can help protect any business sensitive information.
Take out the uncertainty: Put information on the organisation’s website about how to apply for tenders and the organisation’s expectations. Holding events to meet the supplier can also take out the uncertainty of working with larger organisations as well as providing an opportunity to talk to SMEs about the tender process. If local suppliers are already used, then use them as champions to show others that it is possible.
Contract terms: In some cases, contracts can be broken into smaller lots which might be more manageable for an SME. Also check that contract terms, such as insurance liabilities, are reasonable and proportionate for the job. If mature business processes and fully audited accounts are a requirement, these might also be a barrier to SMEs. Consider whether they are necessary, or whether an action plan for developing business process or other form of financial statement can be submitted instead.
Tender process and assessment of tender: Check that the contract process is as clear and simple as possible and make sure that tender documentation is SME-friendly by using plain English. Be clear of the assessment criteria, and assess contracts based on overall value and cost over the lifetime of the product and service, or use a more “output-based” structure. This might help local SMEs who cannot deliver the cheapest quote, but might be able to offer other benefits such as more flexibility, a novel approach or reduced maintenance costs.
Last reviewed 21 March 2017