Understanding the Distinction Between Procurement and Commercial
The term “commercial” isn’t new, yet with the coming changes from the Procurement Act, it’s resurfacing, necessitating a reminder that procurement and commerciality are distinct concepts.
What is Commercial?
The World Commerce and Contracting Association offers a concise definition of ‘commercial’. It underscores how an organisation’s policies and practices align with market needs and broader business objectives, bringing various stakeholders together to understand both opportunities and risks.
Procurement’s Relationship with Commerciality
Procurement isn’t inherently commercial; commerciality is a cross-cutting practice and behaviour and cannot be simply bolted onto an existing operation. However, when conducted with a commercial mindset, procurement can be a lever for an organisation’s broader vision, mission and ambitions, such as fostering innovation, diversifying the supply chain, or delivering enhanced value to customers and communities.
Supporting a Commercial Approach Across the Organisation
How can procurement be more commercial? Here are three focus areas we believe all procurement teams should be focusing on.
- Establishing a Commercial Framework
Reviewing procurement strategies, policies, processes, systems, and contracts is key in assessing and understanding the current landscape. This evaluation phase determines areas for improvement or change to ensure procurement is aligned with organisational priorities and values. This will need to consider the current and future needs and expectations of your key internal and external stakeholders, such as customers, suppliers, regulators, and the local community for example.
Setting clear objectives and outcomes, aligned with the organisation’s vision, priorities and values, enhances accountability. Being commercial isn’t just within the realms of procurement so communicating those objectives and outcomes clearly and ensuring that they are understood will mean it will be easier to have the buying and support of those key stakeholders in their delivery.
- Nurturing Supplier Relationships
Effective contracts and relationships are cultivated before a procurement process begins. Putting less emphasis on the process and more on market engagement, defining the requirements and then managing the delivery of the contract outcomes is essential. Regular market engagement aids in understanding drivers, risks, and opportunities. Actively considering SMEs during early stages will allow you to consider wider benefits such as flexibility, innovation, and increased value for money, while also fostering local investment and improving social outcomes.
- Shifting Focus to Long-term Value
Transitioning from a simplistic ‘lowest price’ approach to pricing to one focused on long-term value, innovation, and alignment with broader business and social objectives is crucial to commercial procurement. This necessitates honing negotiation skills and delving deeper into bid prices to understand underlying costs, market dynamics, and supplier pressures. This is a key skill for the modern procurement professional and will require investment from the business.
Conclusion
Being commercial requires more than a simple name change for procurement, it needs commitment from senior leaders within the organisation to invest in its people to ensure adequate access to training and development to support commercial awareness and acumen.
How we can help
PfH has been supporting the housing sector for over 10 years, delivering projects across every category of spend. Our procurement consultants offer a unique combination of procurement and technical expertise to ensure we deliver the outcomes you need, that are commercially focused and deliver wider benefits on social value, supporting leaseholder consultation, and ensuring the customer’s voice is integrated into the procurement process and resulting contract.
We can help you with all the key focus areas outlined in this blog, so why not get in touch here.
Why work with us?
Our Experience and Capability
- A team of Commercial Procurement & Supply Chain specialists with in-depth knowledge and experience within the Housing and wider public sector and supply markets
- 900+ valued members
- £0.4bn spend under management
- 2,500+ managed contracts
- £0.5bn+ spend analysed for Housing customers
