All nonprofit organizations experience pressure to control costs, not only the dreaded overhead type, but all types. This situation often leads to poor purchase decisions which can happen if you sacrifice quality in order to save money. Nonprofits can build and exercise their purchasing power via sound procurement practices aimed at generating the most value from their spending.
A prior post provided several of the reasons why nonprofits need procurement and this post will provide some ideas that will boost your organization’s purchasing power. These practices require some extra work on your part, but can add value, support program performance and control costs.
Check out the prior post here: Nonprofits Need Procurement
Building Procurement Power: Strength Training
Organizations use procurement practices to find the product or service that best fits the purchaser’s needs. The process is designed to take into account price, quality and alignment with the purchaser’s requirements. The output should be a reasonable cost, not necessarily the lowest, since selecting the lowest price is not always the right answer. A product with a low price can indicate low quality or service and may be less likely to fulfill requirements. Buying product that does not meet requirements can negatively impact program performance and that is no bargain.
Strong procurement practices include the requirement for obtaining at least three competitive bids for purchases over an established threshold. Competition can drive vendors to provide competitive pricing and tailor their offer to provide best value. This gives the nonprofit purchasing power and ensures that price and value are considered when making a purchase decision.
Power of the Ask
Shockingly, one of the most important aspects of good procurement is in the asking. Don’t accept the first offer and never be afraid to ask for further discounts, such as volume incentives or specials on additional services (bundling). Always check if the vendor offers standing discounts for nonprofit organizations. Inquire about upcoming specials or discounts and if the provider is willing to give you that price now.
Open up your networking phone book and see if any other organizations in your area are looking for similar products or services and consider buying them together. This will help you take advantage of volume discounts. Volume often drives pricing, especially at the end of the month, quarter or year, so try to time your purchases towards those times. As a side benefit, cooperating with other nonprofit organizations can help build the foundation for future strategic partnerships, such as joint events, programs or fundraising.
The saying goes, “everything is negotiable” and that is mostly correct. As a buyer, you usually have the power to buy elsewhere, so don’t hesitate to use negotiating tactics with sellers. If you have two or more potential vendors, make sure they know that they are in a fight for your business. This can motivate the sellers to lower price, add features or work to better meet your requirements.
Trained procurement folks are critical to building your organization’s purchasing power and deriving maximum value from your spending. The best practitioners are fearless at executing the topics above and will have many other tricks up their sleeves. When looking to hire a procurement professional, think about the type of person you want in your corner the next time you are looking to buy a car. You want someone who takes pride in supporting your programs by finding the best value and has a demonstrated history of successful purchasing activities. They should be able to explain how they ensured program performance while optimizing value and managing cost.
Nonprofits need sound procurement practices to deliver their mission at the lowest reasonable cost. Require best-value targeted competitive bids for significant expenditures and ask vendors and service providers for discounts and specials. Be prepared to negotiate and combine purchases with other organizations to drive lower pricing through volume. Above all, find (and treasure) some professional procurement help. Hire a staff member or consultant or find a volunteer who can contribute their experience and expertise. These steps will help build your organization’s purchasing power.
For more NFP topics, check out the Not for Profit Leadership Blog: Not for Profit Beyond the Numbers
If you have questions or would like a consultation on a NFP issue, contact me at: firstname.lastname@example.org
For more about the author, follow this link: Michael F. Cade