The UK government currently spends around £220bn on goods and services – that’s about £1 in every £4 spent in total by the Exchequer.
(Source OGC website).
It is right therefore for taxpayers to have expectations that monies on this scale are managed in accordance with best practices benchmarked anywhere in the world. Leading organisations in the private sector have been doing this to help transform their procurement capability and performance. In the public sector however, despite a transformation journey lasting a decade the UK taxpayer would be shocked and outraged at the waste and inefficiencies still existing.
Institutionalised inefficiencies
The historical evolution of the public sector have led to institutionalised complexity that breads inefficiency and ineffectiveness. A fragmented approach to procurement has lead to:
- Failure to standardise specifications on like products and services
- Failure to fully capitalise on collaborative procurement
- Silo mentality behaviours
- A lack of understanding of the benefits of a more strategic approach to procurement and how to execute it
The world has become increasingly global both at the corporate level and the supplier level, however this is not reflected in the way public sector organisations face supply markets. Resistance to change and even outright hostility to collaborating and standardising proven modern procurement techniques slow down the pace of change. Within such a culture of evolution rather than revolution, The Office of Government Commerce (OGC) mandate to ‘guide’, ‘challenge’ ‘promote’, ‘foster’, ‘champion’ and ‘facilitate’ will deliver but a fraction of what is possible and ultimately run the risk of death by a thousand cuts.
Why is it this way?
Structure
The structure of public sector procurement despite much reform and change remains an organisational nightmare to those trying to understand it. For new suppliers, typically SME’s whom governments wish to encourage and support, the complexity of this Leviathan organisation is too costly and too time consuming for many to attempt to penetrate its formidable fortress. For those already on the inside it is ripe to exploit.
Comprising OGC, Buying Solution, over 40 PBO’s, NHS Trusts, Higher and Further Education institutions and a maize of ‘non-departmental public bodies’ and consortia, these bodies are attempting to balance independence and collaborating and in some cases competing. Such a procurement landscape is inefficient, ineffective and confusing. To date, I have never found a single organisation chart that explains it (many thanks to anyone who can provide one).
OGC has demonstrated procurement ‘proof of concept’ with some notable wins and now requires a much stronger mandate and governance structure to effectively meet the demands of today’s global supply markets, drive innovation and deliver increased value for tax payers. However, without a suitable structure, it is impossible to build the necessary capabilities to become world class.
Data
Strategic procurement is about seeing and supporting the big picture.
The problem in the public sector, is that it is extremely difficult to capture data to view procurement from this higher plane. Government expenditure figures are not collected in a manner that is helpful to procurement professionals. That is, data which shows; what monies are being spent on what, by whom, where, and when for the entire public sector and likewise to see none compliance from the same standpoint in order to take corrective action.
Without adequate data, and the authority to enforce policies, it is impossible to set meaningful supply strategies and to measure their effectiveness. Furthermore, what isn’t measured, isn’t managed, and the message across the entire public sector becomes clear – the government is not serious about procurement. I predict that in future the party to gain first mover advantage will steal significant advantage by being able to label other parties as ‘weak on procurement’.
The Power of One
Multiple ERP systems, financial applications, and a myriad of data sources results in questionable data which is virtually impossible to convert into meaningful management information. The result – misinformed decision making.
A New Approach: (for the Public Sector)
A Centre led approach is necessary to implement overarching policies and strategies across the public sector on a national, regional and local basis. Its impact would be far reaching.
The cost of setting up this centre led organisation will more than repay itself from savings generated from the creation of a coherent procurement structure responsible for all expenditure on behalf of public sector organisations. ROI would be a minimum of 500 to 1000%.
The centre led organisation has a mandate to drive strategy, execute, reduce complexity, challenge requirements and to question solutions proposed by stakeholders. The stakeholder organisations retain their independence, but in such an environment procurement organisations report to the centre. The centre led organisation is supported by regional and local procurement organisations.
Strong governance structures are established from the start to ensure not only best value is obtained for stakeholders but also that stakeholders are involved and their needs are being met. Relationships with stakeholders are managed through service level agreements, with commitments on both sides.
The overall procurement organisation structure must be well funded and, in return it is committed to deliver high quality management information to support decision making and deliver pre-agreed targets covering cost, quality, value and service levels at an agreed cost. Crucially, the overall investment in procurement resources in these environments is less than the combined costs of the previous organisations, but the gains in efficiencies and effectiveness are significantly higher.
Part 2 will cover more details on ‘How’