Praesepe PLC

A global health pandemic. It wasn’t that long ago those words were largely reserved for medical journals, science fiction, and Bond villains.

Over the past year, events that once seemed implausible have shifted the landscape for businesses globally, with procurement being no different. The effects of this seismic shift are likely to be around for some time as we collectively come to terms with the new ‘normal’.

This new ‘normal’ will, understandably, see changes to the way we look at procuring services and products, which is likely to go beyond just looking for the cheapest cost.

Casting our minds back to the basics, there are two main options for procuring products and services, and an insourced option where the solution is internal and outsourced where an external service provider undertakes the service on behalf of the business.

Insourcing was typically seen as the goal by budget holders and often viewed as the ‘gold standard’; it allowed greater control over services with less cost than an outsourced solution.

A well-managed insourced solution will typically always be more cost-effective than an outsourced option by the very nature of it, however the initial costs can be a common drawback, and these implementation costs could range from recruitment fees to systems and IT hardware as well as vehicles and additional insurance coverage.

Although outsourced solutions are typically less cost-effective in the long term than insourced options, that flexibility could be invaluable to some in the current climate.

Budget holders will be reviewing their portfolios and likely looking to condense and streamline supply chains to reduce administrative labour loading as well as seeking cost savings.

It may be the case that there are valid benefits with both sourcing options, although it should also be considered how any sourcing option will tie in with the wider strategic goals of the business

Suppliers that adapt to the new way of working and are specialists in their field or offer multiple services are likely to be the winners here as budget holders seek out the supply chain and procurement efficiencies.

It is possible some budget holders will be reviewing payment terms to better manage cash flow during these uncertain times, although this had previously been a knee-jerk reaction by many in the past as it can have detrimental effects on suppliers, particularly those with smaller cash reserves and could strain commercial relationships.

In such instances, it’s preferable to engage in open dialogue with the supplier to find a mutual agreement that affords an elongated payment term, although it isn’t detrimental to the supplier, helping the business to better manage cashflow whilst maintaining supplier relationships.

It may be the case that there are valid benefits with both sourcing options, although it should also be considered how any sourcing option will tie in with the wider strategic goals of the business.

For instance, an insourced option will generally afford greater control and lower ongoing costs to an outsourced option, although it may not be as easy to scale up or down depending on operational requirements or business needs.

We have recently seen a shift in the public sector as departments and agencies, now being expected to do more with less, eye up the potential savings of an internal solution, and this has been evident at the Ministry of Justice with Gov Facility Services Ltd (GFSL) and more recently Hackney Council have brought over 100 cleaners back in-house.

Whichever option budget holders opt for, it’s important that budget holders also review clauses in any potential agreements to ensure they suitably protect the business in these uncertain times.