Guest blog by Mike Jones, CEO of RemoteFD
When looking at your financials what do you see? You see income, expenditure, results and maybe you look at variances against your budget? Do you ever look at the numbers and think about how you purchase, select suppliers, and; what value your suppliers have brought to those particular set of results? Do you have a way to measure this?
One area repeatedly overlooked by NFP’s, Associations & voluntary organisations is the strategic management of purchasing and supply.
When you begin to align your purchasing and supply chain strategy with the aims and objectives of your members and your organisation, you will start to reap the benefits, it can help you identify opportunities to add value for your customers or members, and, at the same time spot duplication, wastage and achieve savings without impacting the front line of your organisation.
Organisations can apply strategic financial management techniques to purchasing and supply. One way to help is to follow a simple set of principles and set out a framework. An example is one that can be reflected by the term, Buy smarter, buy together & be rational. This can be the start of organising your spend and matching this with financial management information to create smart data. Smart data pairs together future planning with historical data to enable rational decision making with measurable outcomes.
- Analysing your spending behaviours by using smart data.
- Creating a culture of unity amongst buyers and budget holders in your organisation and listening to your customer or member community to point your organisation to those activities they derive the most value from, and finally;
- Set measureable objectives before major spending decisions and ensure that spend is always in line with the objectives, risk profile and growth ambitions of your organisation.
The objective is to focus spend on those activities that generate the most value for your key member or customer body, in other words, minimise or eliminate spend on low-value, low-risk activities and maximise the available budget on high-value derived activities. My suggestion is to use a value & risk matrix.
The customer or member body derives value from the organisation’s activities, for example, through events, publications, use of its knowledge base, links & networking with other members. You are able to assess, by listening to and recording data from the community about the value of activities on offer. Some activities are essential, some are strategic, and some are non-essential but they are adding value to the stakeholder body. There will be some activities that derive little or no value to the membership body and carry a minimum risk to your organisation if the activities cease.
These purchases and services appeal highly to the member or customer body but may not be deemed absolutely necessary by the organisation.
These services derive high satisfaction from the member body.
These purchases are the most important ones in your organisation. They represent high value for the membership or customer body and a high degree of risk to the organisation.
Items appearing here are necessary purchases that underlie and support the structure of the organisation. It is the types of services that are not noticed until they are missing and seen as bureaucratic and administrative but critical.
Anything that appears in this quadrant needs to have a “light shined” on it. An assessment of why the organisation is spending anything in this quadrant is required.
By way of a final point, additions to the matrix are recommended to pinpoint strategies, but be noted that using such a tool is more than a technical exercise, it requires an impact at cultural level and how your organisation is governed. Remember, it’s not about spending less, it’s about spending better and in advancement of your organisation’s objectives and purchasing procedures & policies need to be structured to support the focused strategy.
Measuring the true value of your activities and what you procure is key to aligning your organisational growth objectives with those who value your organisation. Listening and delivering high value derived activities will attract more interest and ultimately income, it will also allow you to identify to spot declining trends and where spend is wasted and no longer needed.
Mike Jones, CEO RemoteFD – Info@remotefd.com