The costs associated with indirect procurement can be double the amount spent on the products themselves. A simple statistic that hides some tricky challenges.
As one of the largest providers of industrial supplies, RS Components is in a unique position to understand the needs of its customers, help them improve their processes and make efficiencies.
Procurement teams and engineers face many challenges when it comes to the maintenance, repair and operation (MRO) of their organisation’s assets and facilities. The supply chain for indirect materials is complex due to the stakeholders involved, a fragmented supply base and the sheer number of products split across multiple categories. In addition, there is constant pressure to reduce costs.
So if your organisation spends £100,000 on purchasing products over the course of a year, you may be spending a further £200,000 on processing or ‘soft costs’.
The King’s challenge
In a busy hospital, 24/7 operational reliability can be a matter of life and death. It’s unsurprising then that spares and replacement parts are ordered in high volumes. Having full visibility and control of those orders can deliver a range of benefits, something that underpinned the strategy RS Components put in place for King’s College Hospital in London.
King’s College Hospital can trace its roots back to 1840, and from those earliest days it has been a centre for teaching and development. It now trains more than 900 dentists, 750 doctors and 300 nurses every year.
Around 10,500 staff work there, and annually they deal with something like one million patients, including 9,000 babies being born and the 750 or so people who attend A&E there every day. It is an always-on facility – at any time of day or night someone is receiving treatment and care, staff are on duty and on call, and the facilities are getting plenty of use.
It’s an intense environment and there is always scope for something to go wrong, break or simply stop working. Whether it’s a faulty power board or a door handle that has come loose, in a hospital it needs dealing with – fast.
A survey of nearly 1,000 procurement professionals, carried out by RS Components and the Chartered Institute of Procurement and Supply (CIPS), found that 40% of procurement professionals state a lack of spend visibility is one of their biggest day-to-day challenges for fast moving, low value MRO parts. Which is explored in the Indirect Procurement Report 2018 - Drivers of Change whitepaper, jointly produced by RS Components and the Chartered Institute of Procurement and Supply (CIPS).
Problems arose from a number of key areas:
• Site engineers took responsibility for finding replacement items
• Several hours could be spent chasing the best prices and delivery options on a single, low-value item
• Every purchase had to be accompanied by a purchase order – that created a significant admin burden
• There was a lack of central control over stock
• No one could be sure what had been ordered and what was already in stock
• Purchasing was not broken down in a granular, auditable way
Although King’s College Hospital already had a relationship with RS Components, including access to its PurchasingManager™ platform, the benefits were not being fully exploited. So, RS helped develop a strategy to rationalise all MRO purchase processes for the customer, including streamlined internal admin, robust supplier contracts, and compliance with those contracts. There was then a detailed presentation to key stakeholders, the platform was reinstalled, and a new training schedule was mapped out with a concerted effort to take ad hoc purchasing away from engineers and contractors.
King’s College Hospital are currently partnered with Procure4, who are helping transform their non-clinical spend categories. Procure4 are an external Procurement Consultancy with a focus on ‘People Powered Procurement’. Procure4 developed, in conjunction with Kings’ staff, a new strategy for managing low value parts, setting a new process and engaging with all staff, from stores to engineers and directors, to launch the new system. Procure4 also helped the hospital’s senior finance employees agree a new spend threshold, allowing RS orders to be used on a ‘call off’, rather than raising individual purchase orders, which significantly reduced the admin burden of the process.
Centralising spending has delivered the following benefits. It has:
• Eliminated the problem of engineers spending too much time on low-value activities
• Given the hospital trust an improved negotiating position
• Delivered an unprecedented level of spend-visibility
• Allowed budget-holders to see which items are being purchased, with what frequency, who by and for what uses
If you want to get better results from any activity, you have to be able to measure it. Only being able to see a composite MRO spending figure meant the hospital never understood if money was being spent in the best possible way. That has all changed and there are some important related benefits too.
Centralised spending means a purchaser can have a view on the total cost, plus it also means they can start to develop a better, more strategic relationship – moving a supplier more towards being a partner.
Day-to-day there have been significant time-savings, too. Under the old process, a single order could take around 79 minutes generating a huge admin trail – a PO had to be raised for each order. Whereas now:
• Engineers log on to PurchasingManager™ and straight away place their orders for next-day delivery
• Fixed order values are pre-approved, removing the need for purchasing admin for low-value orders
Significant admin cost savings have also been secured, including:
• Before project: 79 mins process time / £66 process cost per order
• After project: 47 mins process time / £39 process cost per order
• Reduction in time taken to process orders by 40%
• Reduction of 41% in process costs per order: based on annualised orders of 204 (May 2018-2019), this equates to an annualised time saving of 89 hours and £5,508 in process costs