Chain reaction
The dominant commissioning culture in the charity sector has highlighted the need for an agile supply chain. Mary Reilly highlights the benefits of getting this right
The term 'supply chain management' might bring to mind the intricate sourcing and delivery systems of Tesco or Amazon. This, in turn, might lead to the assumption that it has little relevance to all but the very largest organisations in the third sector; which misses the significant opportunities that the discipline can reveal. If charities are able to tailor their method to their situation, it can become a very powerful tool. Maximising supply chain performance can potentially enhance the quality, effectiveness and efficiency of organisational delivery. This is particularly relevant given the constraints of the current economic climate. For these reasons, no organisation, not least charities, can afford to ignore the issue.
Supply chain management is about improving the way your organisation plans for, buys and moves the products and services that it delivers. Supply chain concepts have existed for many years, but there are many reasons why now, more than ever, this is relevant to the third sector. The complexity of organisations has increased dramatically over the past decade and the third sector has not been immune to such changes: stricter regulations, higher service expectations and tighter financial management, to name just a few. Charities often work with third parties, both to deliver organisational objectives and provide back-office functions. As a result, supply chains have become less visible, involve more complex revenue streams and are often based on contracts at numerous levels.
It is important to know what is happening throughout your supply chain in order to meet public procurement and financial reporting requirements. This is particularly important given the developing role of the third sector in delivering services on the government's behalf. Adhering to such rules can be a significant resource burden, especially for smaller charities. Furthermore, the third sector is becoming part of an increasingly competitive environment, meaning that supply chains must be used to maximise performance. In many cases, charities grow organically and therefore do not realise how far they are now stretching their supply chains. In the past, goods and services were typically bought by a central purchasing department, yet this can be slow, inflexible and resource-intensive. As customer expectations continue to rise and resources become ever more scarce, an agile supply chain is fundamental to future success.
Benefits of a co-ordinated supply chain
- lower costs and better cash flow;
- more satisfied customers and users;
- greater control of costs and resources;
- back-office reconciliation and reduced administration;
- best value from limited resources;
- staff who are better focused on organisational objectives;
- visibility of organisational expenditure and savings;
- a stronger negotiating position with suppliers;
- revitalised delivery models;
- a rationalised supplier base; and
- an increase in contract compliance.
The benefits are clear but how can they be achieved? The Office of Government Commerce refers to three over-arching areas where improvements are needed in order to enhance the effectiveness of public procurement; although aimed at public bodies, these points are also very relevant to the third sector [1].
(1) Leadership. Supply chain management must be embraced by the management team and trustees, who should ensure high level ownership of the related challenges and risks.
(2) Systems. Whether automated or manual, every organisation needs adequate systems to manage the processes that make up its supply chain.
(3) Skills. There is a strong need for finance professionalism and commercial awareness in the third sector, in order to understand the markets in which charities operate and to
manage suppliers effectively.
To these I would add a fourth – partnerships. Collaboration with other charities offers opportunities to share good practice and pool ideas. Another option is private sector partnerships. The recent Building Stronger Communities report2, commissioned by the Office of the Third Sector, outlines the potential for businesses and the third sector to work more closely together by moving beyond traditional fundraising models to develop new collaborative structures. Businesses are often willing to share commercial skills and measurement frameworks as part of corporate social responsibility initiatives. Businesses can also leverage relationships within their own supply chains in order to introduce their third sector colleagues to new partnerships.
Supplier partnerships are also important. Long-standing relationships often enable buyers to negotiate improved service levels and lower prices. It is also about clarifying expectations. A trusting partnership can help, but ultimately, the contracts must provide the charity with scope to enforce penalties or exit the agreement if the provided goods or services are inadequate.
Role of IT
A common area of expansion is eProcurement. Some charities have already adopted a fully paperless, streamlined payment system to replace a cumbersome paper-based process involving manual sourcing and hard copy purchase orders and invoices. IT can also be effective elsewhere in the supply chain, for tasks such as inventory management and customer order tracking.
- How will the new IT frameworks integrate with your existing systems, such as finance, and with those of your partners?
- Will the introduction of new IT offer opportunities to simplify the organisational structure?
- Should you consider IT customisation, or would the benefits outweigh the additional cost?
- Is the technology sufficiently security accredited, particularly if you are working with public sector partners?
- Does the system adhere to relevant legislation and policies, for example on procurement, now and in the future?
- Have you planned beyond the technology? For a new IT system to be implemented effectively, much broader cultural change is usually required within the organisation.
- How can you use change management to ensure continuity of supply while your organisation is migrating to the new system?
Realising the benefits
How might your organisation go about realising benefits from its supply chain? It is important to understand the various links in the chain and the critical issues at each stage. Figure 1 below provides a summary of the basic summary points.
The third sector has many strengths but in the 21st century, values and passion are not enough; leadership and governance are also vital. Strong, confident charities with robust, flexible supply chains should be an aim for all. This begins with an awareness of the key issues and an appetite to enhance capabilities. In the current recession, where funding is a scarce resource, the need for action becomes even more important. Ultimately, the aim must be to become leaner, more commercially-minded entities that respond to changing circumstances and deliver objectives in a more cost- effective way.
[1] www.ogc.gov.uk/documents/OGC_Procurement_Capability_Review_Programme_Tranche_One_Report.pdf
[2] www.cabinetoffice.gov.uk/third_sector/news/news_stories/090721_building_stronger_communities.aspx
Author: Mary Reilly
Mary Reilly heads Deloitte’s third sector practice and she works with organisations operating in a wide range of industries including recruitment, retail businesses, media, business services, manufacturing, professional practices and a significant number of charities. She is a fellow of the Royal Society of Arts and has chaired the London Development Agency, the CBI London Regional Council and was a board member of the London Olympic bid committee.
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