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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
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An English view on procurement during economic downturn: Is it enough?
Dr Gordon Murray
The procurement strategic dilemma
Reduce costs to pay for council services
orAccelerate a viable economic recovery
English local government
• 355 councils• Unitary, Metropolitan and County• District
• £175bn public sector procurement spend, of which £42bn spent by local government on external contracts £12bn commodities, goods and services £13bn construction and works £6bn adult social care £3bn waste service
• ‘Wellbeing powers’• Duty to carry out economic assessments
English national procurement strategy
Procurement Policy initiatives
• The National Procurement Strategy for local government (2003)
• The Gershon Review (2004)• The Small Business Friendly
Concordat (2005)• The Roots Review (2009)• The Operational Efficiency
Programme (2009)
Small Business Friendly Concordat (2005)• The approach to individual contracts
is supported by a sound business case and options appraisal
• Keep tender process simple and minimise supplier costs
• Pay within 30 days• Sub-contractors to be paid within 30
days
Roots Review (2009)
• VfM shorthand for cost reduction• Smarter local government procurement
contribution of £2.8bn cash-releasing efficiency gains between 1 April 2008 and 31 March 2011
• Collaborative procurement only tool in the box
• Web-based advertising leads to achieve better deals
Operational Efficiency Review (2009)• Procurement savings across the public
sector of £5.7bn of annual VfM savings by 2011/12£7.7 bn of annual VfM savings by 2013/14
• 50% of local government procurement spend to be through collaborative procurement by March 2011
• SMEs disadvantaged by a disjointed approach to supply markets
• Sharing the best framework arrangements
Perceived procurement best practice• Long-term• Single-source• Consortium purchasing• Payment within 10 days• E-procurement to reduce costs• Web based advertising to extract
best deals
Cost reduction is necessary in the long-term,
but does it make short-term sense?
Biggest problem currently facing SMEs is cash flow
Specific council procurement initiatives to beat the recession
Cash flow Ease of access
Tamworth Pay within 7 days
BirminghamSlough
Pay with 10 days
Castlepoint Pay with 20 days
Derbyshire •List new opportunities•Highlight recurring contracts•Provide details of contract winners for sub-contract leads
Essex •Pay within 30 days•Financial help desk•Bank of Essex for short-term secured loans
•At least 3 quoting businesses to have local postcodes•Reviewing gearing ratios in PQQ•Reassessing minimum insurance levels for PQQ
Politicians steer, procurement managers row,
but procurement managers should also set out the
strategic options
Strategic procurement options appraisal Cost reduction orientation
Achieving community benefits orientation
Long-term contracts Short-term contracts
Single-sourcing Multi-sourcing
Consortium purchasing Local purchasing
Functional specification focus
Social clauses
E-procurement for cost reduction
Supplier Cash flow
Pay slower than you receive payments
Pay faster than suppliers pay 2nd tier suppliers
Critique of current strategy (1)
1. Single-sourcing reduces number of suppliers who gain business
2. Aggregation exacerbates the impact on suppliers
3. May be short-term cost reduction but use of ‘lots; may provide sufficient security of public sector business to weather the storm
4. Absence of public sector business may increase business failures
Critique of current strategy (2)5. Innovation less likely to flourish in absence
of a competitive diverse market6. May lead to long-term absence of
contestable markets 7. Absence of public sector business could
lead to collapse and increase in unemployment and demand for other public services
8. Single-source collaborative contracts could create oligopolies
Critique of current strategy (3)
9. Long-term contracts increase risk for both buyer & seller and
could act as barrier to entry for SMEs Councils dependent on one large supplier in
trouble could be forced to accept lower quality or ‘no service’
Reduce benefits of constructive debriefing for improvements
10. Reduces the number of those who benefit from the security of public sector and access to credit
11. Could lead to long-term switch from public sector having ‘preferred supplier status’
Critique of current strategy (4)
12. Business case for e-procurement investment fails
13. Purchase cards enable payment with 4 days.14. Is publication of contract opportunities only
a false hope if single-source multi-council contracts are pursued?
15. 2-stage tendering too slow in getting new cash into the market
16. Social clauses not sufficiently used with multi-council single source contracts
Critique of current strategy
1. Changed little to reflect the current recession
2. May actually be dysfunctional
10 short-term steps to accelerate viable economic recovery1. Democratic leadership and ownership2. Link with economic development strategy3. Proactively open opportunities, incl. new suppliers4. Short-term contracts5. Multi-source making use of ‘lots’6. Encourage innovation7. Make use of social clauses8. Pay within 4 days using p-cards or 9. Pay on delivery10. Provide security of business through forward
standing orders
Public procurement could be more help in accelerating the economic upturn
Dr Gordon Murray