PROCUREMENT
Although there are a number of business people in each party, there is an inadequate understanding amongst most MPs and senior public sector officials of the importance of procurement and what is required to deliver savings and other benefits. Partly there has been scepticism about what benefits can be achieved. In contrast, there is a tendency towards ‘magic thinking’ which believes that big improvements can be achieved through incremental change.
“The truth is that if all one wants to achieve is savings of 1%-2%, one should be able to do it through doing what one does now, but better – and there may be many ways of doing this. If one wants to achieve 4- 5% overall, then a much more radical approach is required, including a great emphasis on collaboration and a certain degree of commitment to it, though there may be several ways of achieving this.
“7% or more requires a genuinely radical approach, an integrated procurement structure proposed in a paper that I produced recently for the Institute of Directors, Towards Tesco. Subject to a few fairly minor variations, there is really only one model that is a serious option. The bottom line is that to achieve big savings, one has to make fundamental changes”.
In the paper, Colin wrote that potential savings in procurement of £15bn a year could be achieved through a fundamental re-structuring of the management of public sector procurement and a further £10bn through a much broader and coherent approach to outsourcing. So is £15bn realistic?
“£15bn amounts to 7% of public sector procurement. I suggested
Jul/Aug 10
in the paper that it would take three years to achieve this. Most private sector directors of procurement would think that it was their birthday to be given such an unambitious target. Having spent the best part of 30 years creating and then managing procurement and contracting organisations, including some joint ones, I have been aware just what can be achieved by the industry best category managers that I have been fortunate enough to employ.
“They understand the industry, understand the products, know the suppliers, understand what matters to customers and ‘commissioners’ and are highly respected. They can work with suppliers to take out cost. Consequently, in areas as diverse as facilities management, office furniture and laboratory supplies they have delivered cash savings of 35% or more – and have taught me a huge amount at the same time.
“Recognising that there are some long term contracts that may be difficult to re-negotiate and that there may be limited scope for savings in some areas, 7% still does not look too high. Given the state of public sector finances, it is the least that should be achieved.”
When I point out that savings means reduced profits for the private sector, Colin says that all companies need to make healthy profits. His proposals would take cost out of procurement and enable suppliers to take out cost. It is not about reducing profits. In fact, an integrated public sector procurement structure should facilitate healthier supply markets.
So what is this ‘integrated’ procurement structure? Essentially, it is that those who are best able should procure
and let contracts on behalf of all should do so. All major contracts and framework agreements and category management for the public sector should be undertaken by the major professional procurement organisations that already exist in bodies such as Revenue and Customs, DWP and Buying Solutions.
These organisations would need to be bolstered to undertake this role and would need the authority to do so. There are specialist procurements, such as research equipment, defence or for the security services. These should be done by specialist procurement organisations. For instance, the research councils would be potentially well placed to handle all research equipment procurements.
There is a strong argument that this procurement structure should be led by the chief executive of the Office of Government Commerce.
There are procurements and contracts which are better done at a regional level and regional procurement organisations should be set up to handle procurement throughout the public sector in those regions. The directors would report to the head of the national procurement structure.
There is an argument for sub- regional procurement teams, again operating across the public sector and, below that, small local procurement teams to act as internal clients and deal with small local procurements and contracts.
These people would work for the organisations within which they reside. Recognition would also need to be given to the purchasing consortia which
operate within particular sectors. They provide valuable links with customers and it should be possible to incorporate them within the overall integrated structure.
The proposed structure would be consistent with Total Place and should help facilitate it.
When asked if it would ever happen, Colin is optimistic. “The new government will have to make it happen – it will have to make a virtue out of necessity. Within five years – and I hope earlier, the management of public sector procurement will be structured along the lines I have outlined.
“Will the ‘independent’ public sector organisations participate? Yes, if they are made the right offer. Part of this would be a clear service level agreement – we will deliver this if you provide us with that. They should also be given the choice not to join, but it would be a choice either to commit fully at the outset or not have a chance to apply to join for at least three years. The latter option carries risks which few chief executives would wish to take.”
there is
an inadequate understanding amongst most MPs and senior public sector officials of the importance of procurement and what is required to deliver savings and other benefits
Tell us what you think at
opinion@publicsectorexecutive.com pse 27
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