Overcoming the number one challenge in regional procurement
Procurement and purchasing staff working in regional Australia may feel they have excellent knowledge of the supplier base in their area, but this mindset can lead to missed value and higher risk for their organisation, as well as missed economic opportunity for the region.
I was speaking recently with a procurement officer at a regional council in Far North Queensland about supplier discovery and visibility.
“We know all the suppliers in the region” he assured me. “There are two procurement officers at the council, and between us I reckon we’ve got personal relationships with every supplier around here”.
No one can argue the value of local knowledge, especially in a regional or remote area, but this thinking can be unhelpful both to the council and to the local economy. The problem is that the procurement officer (let’s call him Bob) is so certain he knows every supplier in the area and is absolutely confident he's doing the right thing. Yes, Bob may know two local suppliers who can provide a particular service, and they have worked well together for the past ten years. But, in my view, Bob is making a mistake.
It’s very likely he doesn’t know all the suppliers that might want to bid for Council's business. Yes, he has good intentions in using local firms, that’s not the problem. But by not running a proper supplier discovery and quotation process, other suppliers may be missing out. A new contractor could have arrived in the region or an existing one might have developed the capability Bob is looking for, but he’d have no idea.
The need to widen the pool
By sticking with a handful of known suppliers, the council is not acting in the best interests of the region, nor is it strengthening or broadening its supplier base. Added to that, there is anecdotal evidence that this kind of ‘closed’ quoting behaviour is being challenged, especially in rural and regional communities. While this example came from a conversation with local government, the same principles apply in mining, infrastructure development, and any organisation operating in a local or remote market.
To create opportunity for local economic development, councils and businesses should avoid selectively sending RFQs to the same handful of suppliers. Instead, they should give as many businesses as possible the opportunity to quote, and provide feedback to unsuccessful suppliers that will help them improve capability. This builds opportunity, resilience and strength in the local supplier marketplace.
How can this be achieved?
Supplier discovery doesn’t need to be a manual or time-consuming process. Procurement software such as VendorPanel provides:
a place for suppliers to register when they come into the region, and
a portal where buyers can discover and connect with those suppliers.
From a risk perspective, vendor management and procurement collaboration tools are also an effective way to improve probity and transparency in sourcing. In contrast, engaging suppliers over the phone or by email means there’s little oversight or transparency.
Procurement software also streamlines processes so that procurement teams don’t need to spend undue hours of admin on each quotation. The easier you make it for someone to reach out to multiple suppliers for quotes, the more likely they are to do it. Think of it as "accidental compliance"!
True, the shortage of suppliers can be an issue in regional areas. I’ve spoken with procurement people who worry that using technology will mean their buyers going to suppliers from outside the area. The concern is understandable, because using local suppliers is important - especially in local government - and it’s often a sensitive issue. But the fact is that a discovery platform like VendorPanel, designed to support local economic development, can solve this issue by helping organisations find local businesses they otherwise would not have known about, while empowering them to source from them in a way that maintains transparency, which is vital in small communities.
What if there are no suppliers of a product or service in your region?
If there really is no supplier in the region, buyers can use the software to widen their search to include the surrounding area, and continue to do so until they find appropriate suppliers.
Councils obviously want to focus on local suppliers first. But sometimes they may only find one with the capability they need, while their procurement policy says they need to go out to three or more. In that case, they should expand the search to suppliers in the neighbouring council area. This still helps local economic development by keeping the spend as close to home as possible.
It’s all about balancing your contracting requirements (like value for money) with the council’s local economic development strategy. Policy has a part to play in that, but technology can support procurement teams and their buyers in planning, managing, and reporting on local sourcing efforts.