Digital marketplaces – great opportunity for procurement or governance nightmare?
Digital marketplaces hold huge potential for procurement professionals. They provide an opportunity to compare and contrast price and stock levels from multiple suppliers all within a single platform.
The ease and transparency that this provides to users is something we’ve all become very comfortable with as everyday consumers. You only have to look at platforms like Money Supermarket or Skyscanner to see how simple it is to browse and research thousands of options in seconds.
As such, digital marketplaces are growing in popularity and number. This poses a few challenges for procurement, however.
Firstly, not all of them abide by the same standards. On the less regulated platforms, unknown suppliers that haven’t been thoroughly vetted, can sit alongside household names. It can be hard, therefore, for buyers to tell whether a purchase is ‘safe’.
Secondly, buyers may believe it’s easier to buy from the platforms they are most familiar with in their consumer lives – Amazon or eBay, for example. They may even use their own private credit cards to make these purchase – and reclaim the cost back through expenses. These are often for those small but frequent purchases, like USB drives or cables – which, although relatively inexpensive on their own, tend to add up to significant amounts.
With this type of rogue purchasing there is also the additional danger of software or third-party data being bought from an unverified website – and then uploaded onto the company network. Beyond being a major security and data protection risk, checks haven’t been made as to whether these suppliers meet compliance regulations and are an ethical operator. Not only can this be damaging to a business, it can also threaten a company’s reputation – and its share price.
The business risk attached to buying from a non-authorised IT supply chain doesn’t just stop there. IT vendors will typically have a small selection of authorised distributors, so if a buyer is procuring from sources outside of this scope, several problems can ensue – from ending up with products that aren’t covered by UK warranty to grey imported goods.
We need to be careful, therefore, that our internal buyers don’t go off and buy from just any marketplace. However, ways to address this problem are emerging.
Whereas marketplaces like Amazon and eBay are generalists, we’re now starting to see a rise in specialised marketplaces designed for sector specific requirements. These can provide a more tailored experience that offers a higher level of governance.
This is allowing procurement professionals to exercise greater oversight to ensure that all suppliers have been vetted and are reliable operators. The fear that buyers will purchase from a non-approved supplier is then removed – and procurement will not need to deal with the fallout if a rogue purchase becomes problematic.
Within a more tailored purchasing platform, you are also able to add safeguards at an incredibly granular level. Procurement teams can provide buyers with varying levels of purchasing power, which ensures junior employees can’t spend beyond set limits. Product catalogues can also be introduced to restrict what items are purchased through the platforms.
Where it’s possible to integrate ERP and procurement systems, governance protocols can even be automated. This is also providing procurement with a digital audit trail for all company purchases.
All these benefits are giving procurement professionals the reassurances they need and allowing buyers to operate freely within a safe environment, where all activity is tracked.
Crucially, this is great for company employees as it provides a one-stop-shop, that feels the same as those consumer marketplaces we are all familiar with. They no longer need to follow prescriptive procurement protocols – often the source of resentment – when they want to make a quick purchase. They can just jump on a preapproved platform, and order anything they need instantly, without fuss.
Will Public Procurement Budgets Increase in 2021?
Procurement is more than just a private enterprise. COVID-19 reminded us that sourcing materials is an essential part of the government’s role. Throughout 2022, tiny departments sourced massive amounts of personal protective equipment (PPE), medical supplies, and emergency vaccines and testing kits. Even non-procurement professionals were pulled into the fray, as frantic timelines demanded nothing less.
According to Celeste Frye, co-founder and CEO of Public Works Partners, the crisis brought procurement to the attention of skilled employees who had never considered it. As non-procurement personnel stepped up to help their coworkers, many found that they’d stumbled upon a critical and rewarding job. “Existing public employees have seen the essential nature of the work”, Frye said. “[They’ve] gained some critical skills and possibly [grown] interested in pursuing procurement as a longer-term career”.
Small, Local Suppliers Take Charge
Frye, whose firm helps organisations engage stakeholders and develop long-term procurement strategies, thinks it well worth the effort to open one’s mind to new opportunities. Cooperative contracts, for instance, can help public departments and municipalities save money, time, and effort. By joining together with other towns or cities in the region, public procurement teams aggregate their purchasing power and can drive better deals.
These cooperative contracts have the added benefit of advancing equity. Smaller suppliers that struggle to compete with established firms for government contracts can act as subcontractors, helping big suppliers fulfil bits of the project. Once they get their foot in the door, small, local, and disadvantaged suppliers can then leverage that government relationship to take on additional projects.
Especially as governments start to pay attention to procurement resilience, public procurement departments must expand their requests for proposals (RFPs) to take into account innovative solutions and diverse suppliers. According to Frye, Public Works Partners—a certified female-owned firm—has benefitted from local and state requirements that specify diversity.
Post-Pandemic Funding Swells Procurement Budgets
And the pandemic won’t be the end of it. City governments need to build sustainable energy infrastructure such as solar panels, charging stations, and recycling plants, ensure that masks and medicines are never in short supply, and source new technologies to keep up with cloud and cybersecurity concerns.
Public procurement budgets will likely increase to match demand. As Peter Ware, Partner and Head of Government at Browne Jacobson, explained, “in a non-pandemic world, the [U.K.] government spends on average around £290 billion on outsourced services, goods, and works...anywhere between 10% and 14% of Gross Domestic Product (GDP). Post-pandemic, city procurement will only increase as national governments provide local divisions with emergency funding.
And in truth, government employees might jump at the opportunity. Frye noted that public procurement could give immediate feedback on new programmes: “[Procurement] is where new laws and policies ‘hit the road’ and are implemented”, she said. “Professionals in these fields get the satisfaction of creating real change and seeing quantifiable outcomes of their work”.