STRATEGIC PROCUREMENT‘TOWARDS TESCO’ – A NEW APPROACH TO

PUBLIC SECTOR PROCUREMENT

Colin CramMarc1 LtdTel: 01457 868107Mobile: 075251 49611colin.cram@talktalk.netwww.marc1ltd.com

https://www.iod.com/MainWebSite/Resources/Document/policy_article_towards_tesco.pdf

MIRROR TO PUBLIC SECTOR PROCUREMENTWhat Does It Look Like? How Well is it being Managed?How Can We do Better?

My Background

Director, North West Centre of Excellence- 47 local authorities

Director, Research Councils’ Procurement OrganisationDirector, North West Universities’ Purchasing ConsortiumDirector, Benefits Agency Contracts OrganisationCentral Unit on PurchasingCabinet Office, Treasury, Central Government generally

Senior Adviser to Office of Government CommerceMember of Society of Local Authority Chief Executives -SOLACEFellow of Chartered Institute of Purchasing and SupplyVisiting Fellow Manchester Business SchoolInstitute of Directors: ‘Towards Tesco’

TOWARDS TESCOBackdrop: Public Sector Finances

Public Sector Procurement is Vast There is Lack of Strategic Management Huge Uncontrolled Risks

To Supply Chains Projects, Major Procurements and Government Policies Service Inadequate Accountability Probity

Costs of Doing Procurement are Excessive Large Savings could be Achieved Reform is Desperately Needed A New Integrated Model could Deliver Huge Benefits

DOES PUBLIC SECTOR PROCUREMENT MATTER?

• £220 Billion pa• £3,500 per Adult and Child pa• One Third of Total UK Public Spending• One Sixth of UK Gross Domestic Product (GDP)• 0.75% of Global GDP• Size makes it Critical to Delivery of Public Services• Effective Management is Essential to Reduce Public Spending Deficit and Deliver Government Procurement Policies

LOCAL GOVERNMENT PROCUREMENT - £50bn

Alone would put UK in top 20% of national GDPs

FEATURES OF PUBLIC SECTOR PROCUREMENT

• 65% Non-Central Government• 40% Common Categories, Goods, Services• Professional Services £35bn• Construction £21bn• ICT £10bn• Facilities Management £10bn• Energy £4bn• Reprographics £3bn• Travel £3bn• Fleet £3bn• Food £2bn

SCOPE OF PUBLIC SECTOR PROCUREMENT

C G & NHS LG

Commodities GS Construction Health/Social Care Waste Roads Outsourced Services R&D Research Equipment Military Equipment Consultancy Utilities Medical Equipment Drugs

TYPICAL LOCAL GOVERNMENT PURCHASE SPEND

Construction 25%

Health And Social Care 18%

Commodities Goods And 18%

Services

Waste 7%

Transport 7%

Transport (Excluding Ptes) 5%

Agency Staff, Consultancy 5%

Stationery Consumables 0.1%

IF IT WAS YOUR MONEY, WOULD YOU MANAGE IT LIKE THIS?

• Some Major Central Government Department Organisations• Some Large Specialist Organisations• NHS Outsourcing• Buying Agencies: 40+• OGC and Category Teams• Several Thousand Small to Medium Procurement Units• 40,000+ Procurement Points• Absence of Mandation

BUT• Increasing Collaboration/Joint Procurement

PUBLIC SECTOR ORGANISATIONS CREATE UNNECESSARY COSTS FOR SUPPLIERS AND RISK AND

COSTS FOR THEMSELVES

•Indiscipline

•Different Procedures/Contract Ts and Cs

•Complexity – e.g. Tender Procedures/Ts and Cs

•Multiplicity of Tenders

•Multiplicity of ‘Duplicate’ Contracts and Contract Managers

•Specifications

•Inconsistency of Capability, Expertise, Processes

•Paying Suppliers to Sell to Them

ALSO: Inability to use best procurement techniques

PUBLIC SECTOR ORGANISATIONS CREATE UNNECESSARY COSTS FOR SUPPLIERS

Specifications:• Tarmac• IT • Finance Systems• Outsourcings• Street Lighting• Construction• Waste Disposal• Research Equipment• Commodities Goods and Services

Who has the Best Specifications?

WHAT ARE THE RISKS?

PROCUREMENT/THIRD PARTY SPEND: Savings/Benefits through

• Commitment• Increased Leverage• Focus on Big Spends• Focus on Big Suppliers• Better Quality Contracts• Expertise Available to All• Commodity Market Knowledge Available to All• Better/More Consistent Policy Implementation• Consistent Specifications• Scheduling• Opportunities to Use More Advanced Purchasing Techniques

- Relationship Management

- Supply Chain Management

- Value Analysis

- Market Management

HOW ELSE TO TAKE OUT COST? TACKLE THE SUPPLY CHAIN

SO WHAT IS THE COST OF POOR PRACTICE/MISSED OPPORTUNITY?

Furniture 30%

FM/Outsourcing/Major Contracts Up to 35%

Laboratory Consumables Up to 90%

IT 5 – 80%

Construction 5 – 25%

Excellent Construction Management 5 – 15%

Reprographics 15-45%

Social Care 10%

Legal Services 10%

Good Contracts Management 5 – 35%

Benefits Agency 20%

Research Councils £450m over 10 years

© C M Cram

PROCUREMENT SAVINGS

1% Savings Overall - do the same, but better

3% Savings Overall - Do the same, but much better

5% Savings Overall - Some re-structuring, bringing in new expertise

7% Savings Overall – Fundamental Change and Re-structuring

WAYS TO SAVE 1-3% OVERALL

• Re-negotiate• Benchmark• Reduce Costs of Duplication• Harmonise – Procedures and Specifications• Enhance Power e.g. through aggregation• Commitment• Do Things Differently

BIG IMPROVEMENTS NEED BIG CHANGES

•Right Procurement Structures/Joint Procurement

•Common and Complete Databases

•Common Information/IT Systems

•Common Procedures

•Common Specifications

•Commodity, Markets, Procurement Expertise

•Specialist Management

•Best Practice Procurement Techniques

POSSIBLE PROCUREMENT STRUCTURES

1.Each Organisation Acts Independently

2.Benchmarking

3.Collaboration

4.Joint Local

5.Joint Regional

6.Sector Procurement

7.National Procurement

MODEL EVALUATIONHow Should the Sector Proceed?

Collaborative Model/ Objectives

Ind B/Mark Collab Joint Loca

l

Joint Region

Sector National

Leverage

Negotiation

Market Management

Common Procedures

Consistent Legal Interp

Consistent Specs

Fewer Tenders

Expertise

Service

Localism

TOTAL

© C M Cram

PUBLIC SECTOR PROCUREMENT IN 5 YEARS TIME?Central/ Major Departments/Buying Solutions

Industry Specific

Regional P Hubs/Medium Depts

Local/Med/Small Departments

Major National Contracts/Suppliers

* *

Common Categories * *Relationship Management * *Market Management * *Industry Specific * *PPIs/Major Project Support * * *

Regional/Large Local Contracts/Suppliers

*

Small Local Contracts * *Discipline/Implementation/Compliance

* * © C M Cram

INDEPENDENCE

COLLABORATION

INTEGRATION

© C M Cram

PUBLIC SECTOR PROCUREMENT: THE FUTURE?

REPOSITIONING PROCUREMENTREGENERATION MARKET ENGAGEMENT

CONSTRUCTION

ROADS MAINTENANCE

SCHOOLS

MAINTENANCE TRAINING LOCAL LABOUR

PROCUREMENT

WHERE IS MARKET ENGAGEMENTMOST EFFECTIVE? © C M Cram

X

BENEFITSCoherent Framework for the Strategic Management of

Public Sector Procurement spend - the whole spend, not just 'common' categories

Delivery of the massive procurement savings that are needed

Accountability for the delivery of savings, value for money and public procurement policies

Clarity about the costs of doing public sector procurement

Consistent and expert procurement for all contracts, framework agreements, projects

Enable best supply management and market management tools to be used effectively for all areas of procurement for the whole of the public sector

BENEFITS Continued

Consistent approaches to procedures, specifications etc. Consistent approach to interpreting EU procurement

directives and government procurement policies Eliminate Duplication100% compliance with framework agreementsProcurement personnel with the authority to challenge

the need for procurements and query specificationsCareer development path for Public Sector Procurement

PersonnelReduced Risks to ContractsReduced Risks of Impropriety.

THANK YOU!

Colin M Cram

Marc1 Ltd

Tel: 01457 868107

Mob: 075251 49611

Email: colin.cram@marc1ltd.com

www.marc1ltd.com