Procurement strategy for economic recovery

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Procurement strategy for accelerating an economic upturn.
Delivered to PIANOo masterclass, Utrecht, 4 June 2009
Subsequently published in Supply Chain Management: An International Journal

Published in: Technology, Economy & Finance
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Procurement strategy for economic recovery

  1. 1. An English view on procurement during economic downturn: Is it enough? Dr Gordon Murray
  2. 3. The procurement strategic dilemma Reduce costs to pay for council services or Accelerate a viable economic recovery
  3. 4. English local government <ul><li>355 councils </li></ul><ul><ul><li>Unitary, Metropolitan and County </li></ul></ul><ul><ul><li>District </li></ul></ul><ul><li>£175bn public sector procurement spend, of which £42bn spent by local government on external contracts </li></ul><ul><ul><li>£12bn commodities, goods and services </li></ul></ul><ul><ul><li>£13bn construction and works </li></ul></ul><ul><ul><li>£6bn adult social care </li></ul></ul><ul><ul><li>£3bn waste service </li></ul></ul><ul><li>‘ Wellbeing powers’ </li></ul><ul><li>Duty to carry out economic assessments </li></ul>
  4. 5. English national procurement strategy
  5. 6. Procurement Policy initiatives <ul><li>The National Procurement Strategy for local government (2003) </li></ul><ul><li>The Gershon Review (2004) </li></ul><ul><li>The Small Business Friendly Concordat (2005) </li></ul><ul><li>The Roots Review (2009) </li></ul><ul><li>The Operational Efficiency Programme (2009) </li></ul>
  6. 7. National Procurement Strategy for local government 2003-2006 <ul><li>Leadership and building capacity </li></ul><ul><li>Partnering and collaboration </li></ul><ul><li>Doing business electronically </li></ul><ul><li>Stimulating markets and achieving community benefits </li></ul><ul><ul><li>‘ Selling to …’ guides </li></ul></ul><ul><ul><li>Publishing opportunities </li></ul></ul><ul><ul><li>… </li></ul></ul>
  7. 8. Gershon Review (2004) <ul><li>Efficiency gains across the public sector of £20bn by 2007/2008 </li></ul><ul><li>2.5% efficiency gains each year from each council </li></ul><ul><li>Shortage of procurement skills, therefore </li></ul><ul><ul><li>Procurement shared services </li></ul></ul><ul><ul><li>Aggregated collaborative purchasing </li></ul></ul>
  8. 9. Small Business Friendly Concordat (2005) <ul><li>The approach to individual contracts is supported by a sound business case and options appraisal </li></ul><ul><li>Keep tender process simple and minimise supplier costs </li></ul><ul><li>Pay within 30 days </li></ul><ul><li>Sub-contractors to be paid within 30 days </li></ul>
  9. 10. Roots Review (2009) <ul><li>VfM shorthand for cost reduction </li></ul><ul><li>Smarter local government procurement contribution of £2.8bn cash-releasing efficiency gains between 1 April 2008 and 31 March 2011 </li></ul><ul><li>Collaborative procurement only tool in the box </li></ul><ul><li>Web-based advertising leads to achieve better deals </li></ul>
  10. 11. Operational Efficiency Review (2009) <ul><li>Procurement savings across the public sector of </li></ul><ul><ul><li>£5.7bn of annual VfM savings by 2011/12 </li></ul></ul><ul><ul><li>£7.7 bn of annual VfM savings by 2013/14 </li></ul></ul><ul><li>50% of local government procurement spend to be through collaborative procurement by March 2011 </li></ul><ul><li>SMEs disadvantaged by a disjointed approach to supply markets </li></ul><ul><li>Sharing the best framework arrangements </li></ul>
  11. 12. Perceived procurement best practice <ul><li>Long-term </li></ul><ul><li>Single-source </li></ul><ul><li>Consortium purchasing </li></ul><ul><li>Payment within 10 days </li></ul><ul><li>E-procurement to reduce costs </li></ul><ul><li>Web based advertising to extract best deals </li></ul>
  12. 13. Cost reduction is necessary in the long-term, but does it make short-term sense?
  13. 14. Biggest problem currently facing SMEs is cash flow
  14. 15. Specific council procurement initiatives to beat the recession Ease of access Cash flow <ul><li>At least 3 quoting businesses to have local postcodes </li></ul><ul><li>Reviewing gearing ratios in PQQ </li></ul><ul><li>Reassessing minimum insurance levels for PQQ </li></ul><ul><li>Pay within 30 days </li></ul><ul><li>Financial help desk </li></ul><ul><li>Bank of Essex for short-term secured loans </li></ul>Essex <ul><li>List new opportunities </li></ul><ul><li>Highlight recurring contracts </li></ul><ul><li>Provide details of contract winners for sub-contract leads </li></ul>Derbyshire Pay with 20 days Castlepoint Pay with 10 days Birmingham Slough Pay within 7 days Tamworth
  15. 16. Politicians steer, procurement managers row, but procurement managers should also set out the strategic options
  16. 17. Strategic procurement options appraisal Pay faster than suppliers pay 2 nd tier suppliers Pay slower than you receive payments Supplier Cash flow E-procurement for cost reduction Achieving community benefits orientation Cost reduction orientation Social clauses Functional specification focus Local purchasing Consortium purchasing Multi-sourcing Single-sourcing Short-term contracts Long-term contracts
  17. 18. Critique of current strategy (1) <ul><li>Single-sourcing reduces number of suppliers who gain business </li></ul><ul><li>Aggregation exacerbates the impact on suppliers </li></ul><ul><li>May be short-term cost reduction but use of ‘lots; may provide sufficient security of public sector business to weather the storm </li></ul><ul><li>Absence of public sector business may increase business failures </li></ul>
  18. 19. Critique of current strategy (2) <ul><li>Innovation less likely to flourish in absence of a competitive diverse market </li></ul><ul><li>May lead to long-term absence of contestable markets </li></ul><ul><li>Absence of public sector business could lead to collapse and increase in unemployment and demand for other public services </li></ul><ul><li>8. Single-source collaborative contracts could create oligopolies </li></ul>
  19. 20. Critique of current strategy (3) <ul><li>9. Long-term contracts increase risk for both buyer & seller and </li></ul><ul><ul><li>could act as barrier to entry for SMEs </li></ul></ul><ul><ul><li>Councils dependent on one large supplier in trouble could be forced to accept lower quality or ‘no service’ </li></ul></ul><ul><ul><li>Reduce benefits of constructive debriefing for improvements </li></ul></ul><ul><li>Reduces the number of those who benefit from the security of public sector and access to credit </li></ul><ul><li>11. Could lead to long-term switch from public sector having ‘preferred supplier status’ </li></ul>
  20. 21. Critique of current strategy (4) <ul><li>12. Business case for e-procurement investment fails </li></ul><ul><li>13. Purchase cards enable payment with 4 days. </li></ul><ul><li>14. Is publication of contract opportunities only a false hope if single-source multi-council contracts are pursued? </li></ul><ul><li>15. 2-stage tendering too slow in getting new cash into the market </li></ul><ul><li>16. Social clauses not sufficiently used with multi-council single source contracts </li></ul>
  21. 22. Critique of current strategy <ul><li>Changed little to reflect the current recession </li></ul><ul><li>May actually be dysfunctional </li></ul>
  22. 23. 10 short-term steps to accelerate viable economic recovery <ul><li>Democratic leadership and ownership </li></ul><ul><li>Link with economic development strategy </li></ul><ul><li>Proactively open opportunities, incl. new suppliers </li></ul><ul><li>Short-term contracts </li></ul><ul><li>Multi-source making use of ‘lots’ </li></ul><ul><li>Encourage innovation </li></ul><ul><li>Make use of social clauses </li></ul><ul><li>Pay within 4 days using p-cards or </li></ul><ul><li>Pay on delivery </li></ul><ul><li>Provide security of business through forward standing orders </li></ul>
  23. 24. Public procurement could be more help in accelerating the economic upturn Dr Gordon Murray

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