Sustainability and Finance by Ian Burdon

Posted on November 4, 2013

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Editor’s Note: Ian Burdon is currently the Director of Strategic Business Development at Elcom, Inc.  Prior to joining Elcom, Ian held senior positions with the Scottish Government including Head of eProcurement Scotland.  The views in this article represent his personal views and do not reflect the views of Elcom.

As I discussed in my last article, the EU’s draft directive on Public Procurement expands the boundaries of what can be done. Today I want to be a little more speculative but still with an eye on the art of the possible. My underlying thought is that to fully grasp the potential of eCommerce we have to consider the possibilities of Commerce and we have to do that in the world post 29 June 2007.

One of the problems of “procurement” is that it tends to focus on a small number of activities without looking at the bigger picture. At least in central government, buyers tend to focus on the sourcing and contracting process and this is also where EU procurement directives have concentrated (“pre-Award” in EU terminology). Procurement officers in central government tend to have a lot less experience of transactional purchasing or finance processes such as invoicing and settlement. Procurement teams in local government and other sectors often have a broader focus.

Although the idea of an “eco-system” has become a cliché, as has “systems thinking”, it remains a useful metaphor for understanding the bigger picture of which procurement is one element. Thus, when something like eInvoicing is described as “closing the loop” in P2P that is correct but only from a restricted perspective. The bigger picture includes, for example, cash flow to tier two and three suppliers, contract management, banking and the  provision of credit, logistics and the impact of purchasing, particularly public sector purchasing, on local and national economies.

The speculative element is how far government can go in creating a commercial infrastructure to push forward broad economic activities with public procurement playing a full role, using, or adapting, techniques which are already available. By this I mean for example:

Using local economic multipliers to measure the impact of tenders and including this in the assessment process;

Tracking actual local impact as part of contract management;

Promoting supplier finance (not so-called “dynamic discounting”);

Tracking the flow of credit through the supply chain; and

Creating a relationship with suppliers based on the economic importance of business rather than as a vast set neutral entities to be managed through a competitive process;

It is worth saying a little more about supplier finance, a notion which is as old as trade itself. SMEs in particular currently face two problems. The first is that it remains difficult for them to obtain credit from finance institutions and the second is that they are generally paid in arrears. These two factors not only cause problems for them but also have consequential effects throughout their own supply chain. Where the SMEs are subcontractors they are always vulnerable to the actions of prime contractors seeking to retain payment.

Attempts to address this through dynamic discounting or ideas such as project bank accounts in construction only look at one part of the problem – payment in arrears – without ever questioning why payment should be on thirty days (or more) of receipt of a valid invoice. More significantly these approaches do not address the issue of lack of credit, yet credit is the lifeblood of SMEs in a stagnant or recovering economy and is therefore a political issue. One would expect government procurement to have this in mind but it is not something which generally intrudes on the competitive process: the absence of credit makes an impact throughout the eco-system but is not addressed through procurement, in other words.

How does this link to sustainability? By making eCommerce part of the infrastructure and hence repeatable.

When I first became involved in eCommerce at the turn of the millennium I expected, perhaps naively, that at least some of this to have been addressed by now, nearly a decade and a half later. It seemed to me then to be a natural consequence of the way technology was progressing and it wasn’t as though the financial concepts were new. I continue to think that it is these aspects of commerce that we have neglected to recognise the true nature of the change in potential that the internet brought and the step change that ubiquitous mobile computing brings to that. As I have said a lot recently, the lesson certainly has not been lost on the micro-business that fixed my home wi-fi and sent their eInvoice from a smart phone to my email before they had left my front door. Needless to say I did not wait thirty days to pay him and neither did I suggest he offer me a discount for paying “early”.

The significance of 29 June 2007? The day the first iPhone was released.

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