Did you know?

How great a share of costs is procurement?

In a private company, procurement is 70 – 115 % of the turnover, in a service company it varies between 35 and 65 %

In Finnish municipalities, procurements are 53 % of the sum of operational economy plus net investments according to the municipal economic statistics in 2007. For corresponding statistics personnel costs are 42%. In the municipal federations, procurements vary from 20 – 35 % of the operational economy figure.

What does procurement entail?

According to Professor Fieten of Germany, company procurements include:

  • materials procurements
  • service procurements
  • investments
  • insurance and voluntary costs of the personnel costs
  • other business costs
  • financing costs

The traditional materials procurements are a still smaller share of these areas.

The division in the public sector is a little different:

  • materials procurements
  • service procurements
  • customer service procurements
  • other costs
  • investments
  • financing costs
  • subventions with regard to service vouchers

Is there a difference in procurement prices?

According to our research, there can be as much as 100% price difference in procurement prices – for the same amount of purchases.

What does the total costs of procurement include?

In addition to the regular cost of the procurement, the total cost includes:

  • costs of identifying the products
  • costs of choice of supplier
  • costs of ordering
  • operating costs
  • delivery and transport
  • warehouse costs
  • possible storage and internal transport costs
  • billing and invoicing costs
  • payment costs

In small procurements, the procurement peripheral costs are often greater than the procurement costs.

How do service procurements differ from materials procurements?

The content of service procurement is more difficult to determine than in materials procurement. In materials procurement, one can resort to commercial law in the contracts. There is no corresponding law in service procurements. The contracts should be noticeably more precise than with materials. Receiving or sending, which is in the inspection process, is associated with materials procurement. This is not so in service procurement, but should be designed separately. The choice of supplier is made based on the supplier not the product.

What does outsourcing mean?

We define outsourcing as "a certain operation which one has done earlier or the operations widens so that additional requirements are procured from outside producers."

What kind of things should be taken into account in outsourcing?

It pays to begin outsourcing with an outsourcing analysis:

  • are we aiming at savings in costs?
  • are we aiming at better operations?
  • is outsourcing associated with investment needs or with personnel retirements?

Outsourcing should take into consideration the position of the personnel, cooperation negotiations, and possible personnel transfers.

Other factors to take into consideration in association with the purchase of services:

  • defining the outsourced service
  • contract
  • follow-up process

What kind of benefits can be achieved with the development of procurement operations?

In non-production procurements, one can:

  • a decrease in procurement prices by as much as 10 %
  • few percent even in simple cases
  • a significant decrease in the workload both in ordering and billing

What kind of benefits can be achieved in service procurements?

The typical improvements in  service procurements are:

  • the service desired by the buyer and that offered by the supplier are better matched
  • the costs of the service are better focused
  • savings in costs of a few percent
  • an accurate contract model, in which one pays for services rendered not resources