Wednesday, 6 March 2013

Procurement Influence (Part 1): The Elephant in the Room?

Authored by Scott Pryde

As I visit procurement executives from across the UK public sector, we often come to discuss what seems like an ‘elephant in the room’ - how much of the total spend on goods and services is actually under some form of procurement influence. Often procurement can be considered as simply an operational department placing orders and completing tenders, their influence reduced to only a proportion of the total goods and services expenditure. There is a mismatch between this reality and the expectations of policy makers and senior management who, especially in the current economic climate, still expect significant savings and commercial governance across all spend categories.

The role of procurement in high impact categories

In many private and public sector organisations, non-procurement specialists specify the goods and services required. This may be an engineer, clinician, IT professional, construction expert, etc. Often these categories of spend carry a high cost and business continuity impact and harnessing the specification process and point of demand for those goods and service is crucial to long term organisation and supply base efficiency.

In the public sector the top 5 categories of spend are; Construction, Pharmaceuticals, Social Care, Medical technologies and Information Communication Technologies (ICT). They constitute over 50% of the public sectors spend on goods and services.

In these categories, it can often be the case that procurement influence is limited to an operational or administrative tender execution role, rather than being involved in the early stages of the product or service specification.

Why should procurement be more involved?

In many cases, non-commercial decision makers will specify solutions that meet their technical and quality needs, but pay less attention to comparative best value, life cycle costs or price. As may be expected, if your priorities are not commercial or financial, then your specifications will not pay full attention to these factors.

Some argue that this leads to a positive emphasis upon quality, but as many will testify, over specification in many cases will not lead to improved quality. There are often counter intuitive factors that emerge such as increased; product and supply chain fragmentation, as well as unnecessary complexity and volatility all of which lead to supply chain inefficiencies. There is also the stark reality that public sector organisations deal with private sector commercial entities whose main motive is profit. This is not necessarily tied to quality and without strong contractual management; any private commercial entity is incentivised to reduce quality in favour of profit margins.

Should procurement be given more influence?

Should public sector organisations increase procurement coverage and influence in high impact categories, and if so, what would it mean for the skills and education of their procurement teams?

I’ll be exploring this theme in tomorrow’s post: Procurement Influence (Part 2): Better Value & Better Outcomes!

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