Private equity firms need professional purchasing strategies

28 July 2011

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28 July 2011 | Adam Leach

Procurement at private equity companies should be carried out in the same way as at other corporations, even though they have different ownership structures.

Research conducted by consultancy Associated Procurement and the British Private Equity and Venture Capital Association said procurement had the potential to make savings across their “portfolio” – the companies aprivate equity firm has invested in.

“There may be the potential for private equity managers to exploit possible economies of scale across the full range of their investment portfolios, thereby lowering costs, increasing profitability and boosting returns,” said the report.

However, John Durrell, managing director at Associated Procurement, said it is not as simple as combining the buying power of the individual companies.

“This is not about centralising procurement, it’s about getting professional procurement organisations involved that can go out and reach all the various dispersed areas in a private equity portfolio,” he told SM.

“You can’t go for a one-size-fits-all solution. However, you can use your market knowledge to try to develop, with the management of those portfolio companies, the right healthcare, fleet or IT solutions.

“Procurement is about being able to rapidly and accurately provide insight solutions to how you add value to these companies,” Durrell continued. “It’s not about spreading contracts around.”

He added that one of the key challenges to improve procurement within the private equity sector is increasing awareness about the value it can provide when applied effectively. Saying that the procurement industry has “long suffered from a low profile” (and in some cases “a questionable reputation”), Durrell highlighted the need to promote “the kinds of business and performance improvements that procurement professionals know can be achieved”.

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