The KnowledgeBus team was approached by a large utility business with an ambitious target - to save £750,000 on IT product purchases over a five year period. To achieve this goal, the procurement team setup a framework and agreed contracts with five separate suppliers, all of which had agreed to limit the maximum margin they would charge above the trade cost to 2.1%.
The problem the team had was it did not have a system which could effectively check if suppliers were sticking to the agreements in their contract. They required a solution that could monitor and validate the daily trade price and carry out historic spend analysis.
The head of procurement said: “We are aware there are a lot of sliding variables used by suppliers to inflate ‘cost’, such as overheads, omission of vendor rebates and free delivery. So we had drawn up a tight definition of what ‘cost’ was to prevent this from happening.
“What we didn’t have though, was a way of managing and policing purchases to check that what the suppliers were telling us was ‘cost’, was right.”
The utility company sought access KnowledgeBus, a CIPS accredited online application that automates benchmarking of purchases against daily trade guide price and stock levels on over 150,000 ‘live’ products from more than 2,500 manufacturers.
Users simply input supplier product lists or conduct spot checks to see what margin their supplier is proposing. A range of spend analysis tools also help users identify, track and forecast market developments for more strategic procurement.
KnowledgeBus empowers IT buyers with market knowledge, so they can rapidly negotiate better deals with preferred suppliers to unlock more from budgets. It saves users time consistently achieving best value.
Since deploying KnowledgeBus, the procurement team has been able to provide evidence that it is now on track to exceed its saving target of £750,000. The team has also successfully policed IT suppliers, and when it discovered one reseller was in fact charging margins above the agreed limits, it was quickly able to act.
Following the acquisition of one supplier by a larger firm, the procurement team decided to analyse and check the margin agreement was being respected by the new owners. The results showed that since the take-over, margins had actually risen to 15% on all purchases.
“When we contacted them about this it was clear they were unaware of the contract in place. As a direct result of using KnowledgeBus we were able to get the excess fees paid back to us and stop the issue right there and then,” said the head of procurement.
“There are a number of benefits to KnowledgeBus: you can carry out spot checks on prices; get immediate access to your purchase history; track price fluctuations of frequently purchased items; or automate requests for quotes. The most useful for us, however, has been that ability to accurately analyse supplier performance.”
KnowledgeBus has not only provided a system that allows the utility company to police its supplier contracts, it has also given the procurement team the means to demonstrate whether savings are being made.
“It is one thing doing a good job and it’s another thing to be seen to be doing a good job. We can now predict where we are going to be in relation to our saving target and also show where we are currently. As a result, we have been able to prove that our savings target is being exceeded,” the head of procurement said.
The intelligence provided by KnowledgeBus also proved particularly helpful for the utility company when it needed to carry out a £9 million desktop refresh across various sites. Access to the spend analysis tool enabled the organisation to make considerable savings.
“During the desktop refresh, the one part of the project which was a qualified success was the large procurement of commodity hardware and software. The intelligence and control we were able to exert, with KnowledgeBus, were key to achieving very impressive savings.
“We also discovered with KnowlegeBus that on bigger orders, like 300 desktop computers for example, some suppliers were actually coming in below our 2.1% maximum margin. We weren’t aware of this gross inconsistency before,” said the head of procurement.