Driving better procurement

The Chartered Institute of Purchasing & SupplyIn an age where financial markets make front page tabloid news it seems we’ve become accustomed to reading large numbers, very casually and on a regular basis. But when you take a closer look at the figures, you realise how scary things are. Every year the government “spends” £220 billion, accounting for 52 per cent of Britain’s GDP and when you stack this against the current £156 billion deficit, it’s a worrying picture. If this was a UK plc, the government would be effectively bankrupt.

This comparative funding gap doesn’t just herald the way for a succession of government spending cuts – they call for a radical change in the way our government approaches its spending habits altogether. The days of pre-election rhetoric aren’t the only things confined to the past – so too are the days of carefree public spending. Only recently, the Institute of Directors calculated that £25 billion is lost every year through procurement inefficiencies, and even this figure could be the tip of the iceberg.
 
Cut, cut, cut
While we need to make spending cuts quickly, more haste and less speed is what’s really needed. Although the Office of Government Commerce (OGC) and other government departments have already made significant headway in a bid to drive better procurement practice across departments, a whole new approach is needed if we are to successfully crawl our way out of the wasteland and back into economic prosperity. For this reason, we welcome the arrival of the Efficiency and Reform Group (ERG), which, we hope, will give the clout needed to enforce radical change across Whitehall.

The ERG, which will be headed by the Cabinet Office and Treasury, hits the nail on the head in its ambition to spearhead a more collaborative, strategic and accountable public procurement approach. This will help shift discussions on “where” spending cuts are being made to more realistic consultations on “how” they can actually be achieved. Smart procurement means driving better value as much as it entails reducing costs and it is only by adopting this centralised approach that real, long-term results can be reaped.

Despite its massive market leverage, the public sector is currently considered a weak buyer as it fails to exploit its significant purchasing power. The National Audit Office released figures showing that some departments even pay different prices for the same commodities, further reflecting the extent to which they currently operate in silo. For example, there was a 116 per cent gap between the lowest and highest prices paid for the same specification of paper (£6.84 to £14.79). More expensive commodities also fell into the same trap and there was 169 per cent difference for the amount paid for LCD computer monitors (from £65 to £175).

It is our hope that the ERG will raise the bar and force Whitehall to work in an aligned and centralised approach across all departments – not just a select few. The more departments collaborate, the more leverage they have to broker better deals with suppliers on a local and international level.

Individual departments can no longer afford to work in their own fashion, especially when we know that centralised buying can yield much better economies of scale. Having a centralised strategy for buying-in materials will reduce duplicated effort, put in place common reporting systems for clearer baselines and ensure a more transparent view of total spending. Such mandatory buying procedures will set the pace and provide a benchmark for all departments to work towards.
 
Having a licence to practice
The public sector can also learn a thing or two from the way private enterprises operate. For example, a closer look at Whitehall shows many civil servants who never intended to work in procurement are now responsible for vast sums of public spend. It would be unheard of to have unqualified, non-procurement professionals handling billions of pounds worth of business spend in the private sector. It is crucial that basic levels of competences are met through appropriate training programmes and qualifications, and for non-procurement professionals to know how to manage suppliers and understand value management.

Adopting a business-driven mentality will drive forward more effective and strategic solutions as skilled procurement professions are more equipped to recognise and accommodate unprecedented changes in the supply base. For this reason, the Chartered Institute of Purchasing & Supply (CIPS) is working to develop a competence qualification for non-procurement professionals that ensures those at the front line of procurement have the necessary skills and understanding even if they never intend to make the profession their career.

Having a qualified workforce would harbour more ministerial support and respect, which, in turn, would lead to a reduction in red-tape and bureaucracy. This would empower procurement specialists and ensure that departments aren’t hamstrung by a monolithic set of rules surrounding the complex and rigid tendering processes. Instead, they would be able to concentrate on executing the job they’ve been tasked to do. After all – we’re not just talking about a mass cost-cutting exercise, we’re talking about a radical shift in the government’s entire procurement approach.

On the long road home
These changes have been a long time coming, which is why it’s crucial that they are not just seen as a quick-fix and actually reap lasting results. Quick wins could lead to significant losses in many forms – which is particularly pertinent given that procurement screens all costs, including headcount. Making hasty staff cuts, for example, could result in long-term skill shortages and put unnecessary pressure on remaining employees. Highly skilled procurement professionals must be encouraged to develop and not be outsourced, which is what has been happening.

Some pockets of good practice already exist and there are examples of where the public and private sectors have worked successfully to drive more efficient procurement practice. For example, the BBC, whose spending is always under close watch, recently sourced a single provider to manage its third party agencies. In the first six months alone this resulted in £1.1m savings and they are now working towards a further 10 per cent cost savings. Even small scale changes can make significant differences. For example, The Department for Work and Pensions transformed their print and distribution supply chain, freeing-up staff time and driving 50 per cent cost savings.

Risky business
Whatever approach the ERG takes to shake up its procurement strategy, it is absolutely crucial that attention is paid to supply chain risk. This is especially pertinent when you consider the vast array of services the public sector provides. From buying the right hospital equipment through to installing latest technologies to manage the benefits payment system, the stakes are high and the cost of accommodating potentially ill-fitting goods or services could be crippling.

The risk factor becomes even more important because it’s often the case that as supply chains become more lean and efficient, they inherently become more vulnerable. Moreover, as many departments outsource and rely on third parties, the stakes rise even higher. Accountability and reputation go hand in hand and with tax-payers as the ultimate owners of these organisations, now is not the time for complacency. The quality, safety and sustainability of a supply chain, and the goods and services obtained along the way, cannot be put at risk.

Indeed, this is an opportunity for the public sector to take a moment to remember examples of significant supply chain blunders, such as the recent global recall of some Toyota cars. While the world’s biggest car manufacturer may have still reported profitable earnings recently, the company faces longer term brand reputation damage. This is why fostering a closer collaboration between partners and suppliers, and minimising the reliance on out-sourcing, is crucial if we are to mitigate risk and simultaneously protect reputational damage.

Collaboration is the key ingredient on the road to recovery. Not just between departments but also with suppliers and private enterprises. Just as businesses work tirelessly to protect their brand names, so too must the public sector learn from UK plc and work to build a more efficient and effective supply chain solution which improves quality as much as it drives down costs. It is our hope that the ERG helps realise these ambitions so we can see the UK government reduce its ever-spiralling budget deficit and save us all.