Housing and Residential Services | 24 May 2018

Client: One of the UK's largest professional landlords

Assignment: Procure to Pay Project - reducing costs by focussing on procurement

Reducing Costs by Focusing On Procurement

The Problem

The Procure to Pay Project was part of a wider program undertaken by Bourton Group reviewing several aspects of the business. The intention was to end with a set of recommendations for our Professional Landlord client to implement.

Our client had no Procurement Manager or team, and there was no alignment of purchasing processes between different areas of the business.

The end to end process from deciding to purchase something to paying for it; only became standardised once the invoice was received by the Purchase Ledger team.

The Solution

The project fitted neatly into the DMAIC (Define, Measure, Analyse, Improve, Control) approach, with Bourton’s involvement from Define until part way through Improve.

The first step, in Define, was to put some boundaries around what the aims of the project were, and a Quad of Aims was used for this.

With no procurement function in the business to state what the issues were, a workshop was held with people from different areas, and a combination of items they identified as issues with procurement went into the definition of what should be solved.

In the Measure phase, three main sources of data were gathered:

  1. Process maps were created for the key areas of approval and invoice processing so that the process steps were fully documented
  2. Process observations and interviews were carried out, both to validate and time the steps in the process maps, and to understand the non-standard purchasing methods in each business area
  3. Data on defects (specifically incoming invoices which had to be returned to suppliers) was gathered by the Purchase Ledger Team.

In the Analyse phase, data gathered during Measure was applied to a full set of the previous financial year’s purchase ledger, over 430,000 lines of data. This volume information built up a picture of what could be gained by reducing defects and other forms of waste observed in the process.

Separately, the Purchase Ledger was also interrogated with regard to the potential to reduce spend, and improvement suggestions were validated with other similar organisations who had a more advanced approach to purchasing.

Process Improvements

Multiple actions were identified which would enable our client to improve efficiency and significantly reduce costs, but broadly they all supported two overall improvement recommendations.

Firstly, they needed to start raising orders in advance to cover all purchases, and secondly, they had to invest in procurement capacity; hire somebody who had a background in reducing procurement spend through consolidation of goods and suppliers who could take a more strategic approach to procurement focussed on the business’ overall needs.

Neither of these changes are a radical departure from what might be expected of the procurement process in a company the size of one the UK’s largest professional landlords.  However, in a business where back office functions had not previously been an area of focus they represented a new way of thinking.

While budgets were managed in some areas of the business, the overall cost of the Purchase Ledger had never been significantly challenged.

The Benefits

The benefits of implementing the recommendations from the project split into three categories

  1. £5.1m reduced costs per year to be achieved through supplier and product consolidation and taking a more strategic approach to procurement
  2. £65k reduced costs through headcount reduction as a result of process efficiencies, specifically
    • 14,000 fewer invoices received annually (35% reduction)
    • 68% reduction in approval transactions
  3. Reduced financial, HSE & other regulatory risk, achieved through reducing variability caused by mistakes, deliberate circumvention of procurement processes, a lack of resources and system failure.