Features: May 24th, 2012

Lord Andrew Adonis argues that public sector procurement can deliver more efficiency and reduce costs further. In this article he describes the changes that are taking place and he points the way to transforming the procurement process across the board.

There is no doubt that the way in which public sector bodies purchase goods and services is evolving. Drastic budget cuts have led to departments having to consider new ways in which to drive efficiencies and streamline long-standing processes. As a result of a 25% cut in key departmental budgets and overheads, there has never been greater pressure to focus on two key drivers that create value in the procurement chain – efficiency and service redesign.

Weaknesses in the procurement process

A snapshot of the way in which this works at the moment is fairly fragmented, as I recently highlighted at the Office Depot Strategic Thinking Forum in Central London, which was attended by procurement and facilities management professionals from both public and private sectors. Although certain departments have quickly adhered to the need to implement a centralised procurement process that reduces revenue wastage and duplication, others have been much slower in following suit.

Not to say that there hasn’t been a significant shift in focus on procurement in the public sector since the economic crash. Before 2008, there was a lack of engagement by senior public sector managers, when budgets were rising year-on-year, the need to drive efficiencies in the supply chain were taking a backseat as a result. Since this time, economic uncertainty and departmental cuts have brought the issue of internalised cost savings squarely to the fore, with many senior managers and ministers following suit by focusing on service redesign and centralisation as a result.

Further tackling of this comes back to streamlining processes and realigning services in a way that falls in line with the need to think more strategically when making purchasing decisions. At best, a number of departments are currently addressing both of these areas and at worst, some are only looking at short-term cost cutting.

Taking libraries as a key example, despite a number choosing to employ cost-cutting techniques, many have faced closure. However, others have also focused on redesign and merged their buying departments with those of other libraries in order to drive shared benefits such as increased economies of scale. Although this is a key survival tactic in itself, the advantages it creates has allowed these libraries to focus more time and resource on providing a better service. Finally, addressing the need to streamline procurement influences staffing as the enhancement of customer servicing may require flexible working and job redesign.

The NHS is one area where the need to address fragmented practices is most needed. A recent NHS procurement report highlights that there is a spaghetti soup of procurement practices in use at present. For example, despite certain trusts driving major efficiencies in the way they buy goods and services, one trust purchased 177 types of surgical glove, demonstrating the dire need to showcase and implement a best-practice approach.

The way forward

An example of an effort to aggregate common services across different departments can be found in last year’s Whitehall negotiations with IT provider, Oracle. Previously, software was purchased from individual departments at different rates. However, in May 2011, a centralised cost and discount structure was agreed which resulted in more streamlined purchasing across the board and increased savings following the confirmation of one core discount rate and the recognition of Whitehall as a single customer. Taking a similar approach to the way in which major suppliers are managed is therefore key in securing further far-reaching benefits.

The hosts of the Strategic Thinking Forum, Office Depot, are also an example of a business that has provided public sector customers with opportunities to streamline their supplier base. The company works with public sector bodies to provide comprehensive integrated business solutions such as office supplies, print, furniture, facilities management and managed print services.

There have certainly been steps made in the right direction, but in order to create a robust centralised procurement framework for future government activity, significant changes need to be made.

Finding ways to implement short-term cost cuts is all well and good, but without an ongoing focus on regularly sharing and implementing best practice, centralised and devolved approaches to purchasing will continue to battle for dominance. Realising that true long-term value can only be achieved through seeking to forge partnerships and better collaborate with suppliers is also vital, as the need to cut costs and demonstrate how efficiencies are being driven in the process comes to the fore.

Lord Andrew Adonis is a Labour peer and former Transport Secretary.

Office Depot is a leading global provider of office supplies and solutions.