Procurement is one of the most important aspects to any investment that a city makes, whether it be complex smart city development or a simpler procurement of office furniture. Private sector organisations have whole departments that are dedicated to procurement, making sure that the right deal is struck by the company when purchasing any product. Such skills are not always available on the same scale in the public sector, but the procurement of products is no less important.
Imagine for example that a city has an energy bill of €7.5 million per year, a 1% saving on this bill would equate to €75,000. I am sure that city administrators would be able to do something quite productive with that money. So, what can cities and municipalities do in order to be smarter about how they go about procurement. One solution would be to work together.
Economies of scale are something that are talked about a lot when large companies merge, by growing in size companies are able to make savings on their outgoings in many different aspects of their business. So, can cities and municipalities expect to make similar sort of savings if they work together and look at procurement from a group perspective?
The short answer to this question should be yes!
A lot of the time when a municipality goes to a solution provider for a smart city solution they will get the response from the vendor that they can have one of their off the shelf solutions as their request is simply not big enough to build something tailor made for them. Quite simply when looking at each city or municipality on its own it makes little commercial sense for a vendor to tailor make something for them.
It would therefore be a great idea for cities to join together in order to create a larger potential market that would encourage vendors to be more flexible as they would know that the potential payback would be worth the initial investment in tailor made technology. There are many potential gains that can be made out of such an arrangement.
By pooling all of their skills it would mean that each entity does not need to employ procurement experts and negotiators as these would be employed by the cooperative organisation. The negotiators that are working for the cooperative will also benefit as they will also be able to create in-depth and long lasting relationships with the vendors so that when they do come to negotiate the whole process can be completed quickly and efficiently. This has a benefit to the public sector organisation, but also to the vendors as they will know that they are not wasting their time when making tenders for business.
It all sounds quite simple and too good to be true does it not?
Yes, it does to us and there are some great examples of such cooperation being a success across Europe (eg: London Energy Project). Setting up the entities and getting the ball rolling on such projects may not be the easiest as there are a lot of interests to consider, but the long terms potential gains for the public sector entities are well worth the initial effort.