The business environment is becoming increasingly competitive, leading organisations to examine every aspect of their businesses to reduce costs, focus on value-adding activity, optimize business processes and improve their competitive position. These activities need to be applied across-the-board to gain maximum advantage, while still presenting a common image to their clients.
One of the major areas of competitive advantage is the outsourcing of non-core activities. As a specialist procurement organisation, Activate has researched various models in use around the world, and operates a purchasing model that is proven to improve response time, save very significant costs, reduce administration and allow access to the latest and best supplies.
Research has shown that there is a world-wide move to outsource purchasing to specialists, who have the advantages of focus, a wide and deep knowledge of products, prices, suppliers and trends in the area of specialisation. Many companies around the world and some in South Africa are currently implementing outsourced procurement systems. This is in addition to many supplier database developments (eg Tradeworld, Quadrem, and QuesT).
At this stage, Activate is mainly focusing on procurement of branded Marketing-related items, as this is our specific area of expertise and a potentially large saving for clients. However, there is no reason why other supplies cannot be procured using the same systems, and we currently source diverse items for clients (eg GPS units, corporate clothing, sports equipment).
Most companies make use of branded items such as posters, signage, Point-of-sale, corporate clothing, corporate gifts and other Marketing-related items. Experience shows that, on average, there is a mark-up of 90 to 180 % along the distribution chain from manufacturer to the end user. This is because of the vast range of goods available, large stock requirements, the long supply chain and the degree of fragmentation of the industry.
There is an opportunity to eliminate elements of this chain, thus saving significant costs while simultaneously reducing supply times. This is achieved by using a specialist Marketing Procurement provider, who acts on behalf of the end user to source, procure, store and distribute branded items. Savings are possible because the specialist has a detailed and current knowledge of the industry, enabling suppliers and prices to be benchmarked or optimised, professional systems used and the latest, most effective products found.
Another important issue is that internal Marketing & Sales resources usually take on the responsibility to find, select, order and distribute branded items. In general, these personnel are not trained in this field, do not have sufficient time or experience to source optimally and waste time on unnecessary administration. A specialist procurement company eliminates these problems, enabling Sales and Marketing to spend their time more effectively in client-focused areas.
Benefits of specialist procurement
The use of a specialist procurement company can deliver many benefits to client organisations. These range from direct cost savings, which is relatively simple to calculate, to indirect benefits such as focus of staff on core issues. A list of potential benefits is given below:
- Reduce BTL direct costs by approximately 20 to 30 %
- Reduce administrative load – only 1 invoice monthly
- Enables the company to implement global best practices while still supporting BEE and SME firms.
- Eliminate multiple stores, freeing up expensive office space
- Controlled stock of Marketing supplies
- Benchmarking of manufacturers’ costs
- Enables cost/quality/fit for purpose analytics
- Identify latest trends and suppliers worldwide
- Economies of scale by combining buyer power across companies
- Fully transparent costs
- Reduced risk of fraud & unethical practices
- Efficient distribution of Marketing supplies
- Allows Sales & Marketing to focus on value-adding activities
- Consolidated management reports across all items/departments
Service & Flexibility
While it is clear that specialist procurement is an outsourced activity that can save costs and reduce load on internal resources, there is a concern that flexibility and service levels can be adversely affected. However, the Activate concept allows complete flexibility, and if users prefer to buy certain items via another channel or supplier, there is no problem in doing this. However, we usually insist on being consulted in this case, purely to ensure that brand identity and standards are maintained. Also, as our fee is fixed, some cost advantages will be lost when purchases are made via other channels.
A weakness in some centrally-controlled procurement models is that there is total focus on systems and supplier management, and personal service with the clients may be lost. The result of this is that products are procured that no longer meet the needs or are wanted by the people in the organisation, resulting in obsolete stock and dissatisfaction. Activate recognises the potential to lose touch with actual end users, and actively engages at this level on a continuous basis. While the back office management systems allow efficiency, relationships on the ground must continue to ensure relevance of purchasing for the firm.