Procurement: Are monopolies inevitable?
With companies continuing to recover from the financial crisis, it is important that firms are not spending money unnecessarily.
European businesses have always been under pressure to ensure they get the maximum value when procuring goods and services from third-party sources and this has become even more crucial since the economic downturn of 2008-09.
Key considerations for procurement professionals
There are a number of factors companies need to think about during the procurement process. Some of these include:
- Logistics: Is it worth paying extra to purchase goods that are produced closer to your business? Although you will be paying more, shipping costs will be lower and suppliers in your local area will be better equipped to deliver items and support at short notice.
- Environmental factors: This is an increasingly important consideration for companies. Firms are now far more aware about their carbon footprint than in previous generations and are reluctant to deal with third parties that do not take sustainability seriously.
- Payment analysis: Have you identified any possible offers or bulk purchase discounts?
- Quality of goods/service: Are your suppliers highly recommended? Is it worth taking a risk on an unproven service provider in order to make financial savings?
- Future-proofing: Is your supplier likely to cater for your needs in 12 months' time? With technology and consumer behaviours continuing to evolve, it is important to think ahead.
Are procurement monopolies unavoidable?
Even if you have taken all of these factors into account, finding the best deals can be difficult and there are certain sectors that have been monopolised by a very small selection of suppliers.
Smaller businesses have complained that larger corporations have the monopoly on public sector contracts and this is something European leaders are keen to address. New EU laws on public procurement and concession contracts were finalised in January 2014 and these should ensure greater competition.
Bidders will face less red tape and tighter regulations surrounding subcontracting have also been outlined. This will prevent large businesses from securing lucrative contracts and then passing the work on to smaller firms - a process known as "social dumping".
The European Parliament's Rapporteur for Concessions Contracts Philippe Juvin commented: "New rules on concessions contracts are also a strong signal in favour of a reinforcement of the internal market.
"They set up a healthy economic environment from which all actors, including public authorities, economic operators and, in the end, EU citizens, will benefit: now the rules of the game will be known to everyone."
What about the private sector?
It is clear that public procurement processes are being overhauled, but what is happening in the private sector?
According to Alis Hemmingsen - owner of the company Responsible Procurement Excellence - demographic changes across Europe are having a major impact on procurement. In a post for the Procurement Leaders blog, she suggested that more small and medium enterprises are being run by women and different ethnic groups and this has created a far more varied market.
"Organisations must produce products and services that are appropriate to an increasingly diverse marketplace, as well as have the ability to find the best suppliers from a diverse supplier base," she wrote.
Exactly how these changes will shape procurement in the near future is unclear, but they could pave the way for new, forward-thinking organisations to increase their market share.
One sector in which experienced procurement professionals play a particularly crucial role is IT. Companies are more reliant on third-party organisations to deliver sophisticated cloud solutions and finding a cost-effective service can be a big challenge.
A new study by ReportBuyer has identified emerging trends in IT service procurement among retail banks. It showed that 49 per cent of banks describe their IT infrastructure as "somewhat complex" and a further 30 per cent label it as "very complex".
One of the key findings of the survey - which covered more than 130 IT decision makers - was that most retail banks prefer to deal with local service providers, as they are in a better position to provide timely support. Meanwhile, retail banks are generally sceptical of large-scale public and private cloud computing suppliers, which suggests competition in this sector is healthy.
Overall, it seems that while monopolies are existent, legal reforms and changing demographics are helping to increase competition and open up more opportunities for smaller, less established suppliers throughout Europe.