The National Audit Office has suggested that the NHS in the UK could save in excess of £500m through more effective procurement.
This raises a very interesting question – if the NHS can do this, what can UK plc do as a whole?
There is so much duplication and ineffective processes across procurement that I estimate that the total figure could be many multiples of this. There is talk today of small schools synthesising – i.e. working together and sharing services. As far as I’m concerned this is a no brainer and should be considered a given rather than an option.
Let’s concentrate on the front line services, let’s concentrate on our core competence, let’s concentrate on freeing up adminstrative duties to concentrate on client/ customer delivery. If we can collectively develop this philosophy and actively look for efficiency opprtunities rather than being protective of position/ role, then this country will quickly get back on its feet.
The way to drive real savings across procurement is not to hit the suppliers on the head for a couple of percent off this and a few pounds off that, it’s about looking strategically at how best to structure the whole process.
Where things need to be centralised, centralise them. Where there is a need for local decisions, then retain the responsibility local. However, let’s not fudge it.
Take the hard decisions now and we can look forward to building a better future for all.
Tony Lockwood, Chief Executive, xynergie
Procurement outsourcing is a hot issue with large businesses in the current financial environment. Procurement outsourcing is the transfer of the procurement or purchasing department to another specialized company. This allows the company to benefit from the expertise of the outsource company. This also has cost benefits for the sourcing company.
Procurement and outsourcing enables a company to concentrate on its core competencies without the need to staff and manage an internal purchasing department, with all the costs that involves.
Many large companies have long outsourced its indirect purchases, which are those that allow it to manage its day-to-day activities. This would include such activities as recruitment, marketing, facilities management and office services such as cleaning.
Whilst it seems almost natural for indirect purchasing such as hiring staff or purchasing advertising space, companies are now looking at the cost savings that can be found from the procurement outsourcing of the direct purchasing activities.
Direct purchasing are goods that are purchased either to be sold on to the consumer or as part of a production or manufacturing process. Therefore, if you are a wholesaler, the purchase of your initial products would be a direct purchase and if you are a toy manufacturer then the plastics you purchase are also direct purchases.
In the United Kingdom, the government has gone one-step further and created PFI projects (Public Finance Initiatives) where large companies bid to run public buildings such as hospitals. The winning business provides and manages all the facilities, cleaning and day to day running of the hospital for the next 30 years.
Business travel has always been a popular service to outsource. Many companies allow a separate company to purchase all their travel, flights and hotels. The business benefits from cost savings as well as not having the bother of managing so many small ad hoc purchases.
The public sector has always outsourced their purchasing to various degrees. Much of the procurement is put out to tender and competition to win the contracts is fierce. This is because public sector work is regular holds some cachet and is reasonably well paid.
With the rise of the Chinese, Indian and Taiwan manufacturing capabilities outsourcing of manufacturing has become very popular. Indeed most computers and many electrical goods are now manufactured in the Far East. This means that all of the company’s manufacturing purchasing is also completely outsourced. Not only does the company benefit from very low manufacturing costs, but they also benefit by not having to purchase all the component parts.
You can clearly see that procurement outsourcing is now a key part of many large company’s business strategies and that they are clearly benefiting from this decision.
To learn more about outsourcing procurement, procurement management & strategies etc visit the Purchasing & Procurement Center Website, the leading website providing Procurement Management & Strategies information & resources. The Center provides many free resources (Reports, Webinars, etc) for purchasing & procurement professionals – among them the most downloaded Purchasing Report over the web, “7 Star Purchasing Report”, which you can get at the website.
Not my words – this is the description given by none other than Francis Maude, the Paymaster General – see this article in the Telegraph
This ties in with the Green Report that highlighted the inefficiencies across Government.
Although it is pleasing to see that Government has last started to realise that there is an alternative to front line cuts, I do question how they will bring real innovation from the private sector and indeed from the SME’s within the private sector to make real change.
The big opportunity for the Government and the country as a whole is to accept that change is required (i think that we are getting there on this point), understand that there are alternative approaches available other than from the big 4/5 ‘consultancies/ outsourcing’ firms (that have been getting fat on the profits that they taken from the public purse over the last few years) and engage with the smaller, more nimble new entrants to the market that bring in all of the innovation.
Only time will tell whether this opportunity is taken or wasted!
Serco have hit the headlines this week after their FD sent a letter to their supply chain asking for a 2.5% rebate on work carried out this year on Government contracts. This was their reaction to the decision by the Government to look to their main suppliers to share the load on spending cuts.
Although this doesn’t come as a surprise as it is the kind of thing that Procurement has done time after time – lets go and hit the suppliers over the head and squeeze a little more out of them has been the typical mantra.
So what is the alternative?
The xynegie approach is one that focuses upon collaborating with your supply chain and working with them to introduce innovation to your operations. This results in cost reductions, optimised operations and improved service delivery.
Download our latest white paper to see how this can work in practice.
Press Release – 20th October
Procurement specialist xynergie has called for Government savings announced in the Spending Review [Oct 20th 2010] to be achieved through improving procurement efficiencies, rather than by cutting frontline services.
xynergie chief executive Tony Lockwood said: “Government procurement inefficiencies were highlighted in Philip Green’s Efficiency Review. While the chancellor has said it will make savings by improving efficiency as well as making cuts, we are yet to see how they will achieve this. Technologies and methodologies are available and in-use in the private sector that completely rule out the levels of inefficiency shown in the Philip Green report.
“In the way it handles procurement, the Government needs to get up to speed with the private sector. It must re-engineer its procurement processes and make savings with backroom efficiency, not frontline cuts.”
For further information, go to www.xynergie.co.uk
Information for Editors
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The long awaited spending review is almost upon us and everyone is holding their breath!
Surely, the review will create as many opportunities as threats – it really is a matter of perspective!
Tony Lockwood, CEO of xynergie states: “The knock-on for the private sector from the impending public sector cuts means that there has never been a time when private sector collaboration has been more vital. We in the private sector must pull together to weather the storm. When faced by external pressures, we are all in the same boat. We must cluster together and do what we are good at – innovate, change shape where necessary and boost efficiencies to avoid cuts of our own.
Procurement is a last bastion of hope for many companies seeking to survive uncertain seas. Outsourcing provides an answer for swift, decisive change that will ensure survival. Public & Private sector collaboration – now there’s a thought!”
This is a very interesting Video
It really does support what we have been saying for a long time – there is a real need for Government – Central and Local to come together and collaborate across back office functions. This will drive out massive efficiencies without the negative impact on front office services.
xynergie have the skills, experience and will to deliver massive value, improved performance, reductions in costs and efficiency gains across both public and private sectors.
The new coalition government has rather erratically announced a £7.5bn cut in the budgets for BSF and there is yet another outrage from local communities that have been affected.
Although, I never hear of any realistic alternatives from the moaners, having read a range of articles on the subject over the last week or so, I believe that there is a real option that so far just doesn’t seem to have been considered.
Looking at some of the designs that have been submitted for various projects throughout the country, it is evident that the architects are using the opportunity to make their mark in the local community and on the face of it, I don’t have any real issues.
However, it must be remembered that first and foremost, a school needs to be functional and it is apparent that some of the newly built schools just aren’t and that’s where the designers have got it wrong. Design over function never works!
So, what’s the alternative, an alternative that will reduce costs and just maybe facilitate the building of more schools?
I’m working on the premise that a school is a school and given schools of similar size, the obvious question is why do we need to have different designs. Lets concentrate upon designing the ‘ideal’ functional school and lets make sure that all future builds utilise at least 90% of this standard design. The remaining 10% will concentrate upon the look and feel and will facilitate some individualisation and styling.
The approach that I’m proposing is in practice in the motor industry – the Audi A4 has exactly the same underpinings as the VW Passat, as well as a Skoda and a Seat model. Although you can see the familiarity of the four cars when they are together, they still retain their individual styles.
Why can’t this be applied on designing schools?
That’s the question that we should be asking and forcing the government to consider.
Can Procurement continue to operate as it has for many years?
Can Procurement professionals continue to simply manage categories and focus all their attention on getting better deals from their supply chain?
I believe that the answer to these two questions is the same – absolutely not!
As the global economy sways in the wind almost daily at the moment, Procurement professionals have the opportunity to jump up, grab hold of the opportunity and drive change in the way that organisations think about and manage the supply chain.
Collaboration is the future and Procurement can and indeed should look to drive a collaborative spirit into the heart of every organisation (both private and public). Having worked with many organisations, I’m still surprised that;
- organisations still operate in silos – this is at the root of some of the issues in the UK public sector where departments do not collaborate at all
- category management is at the very core of procurement functions but this tends to focus on driving better deals with suppliers rather than looking at improving the end to end planning process
In future, we need to ensure that a collaborative spirit is applied across the whole organisation.
Collaboration is required throughout the supply chain process, from planning to ultimate delivery. It’s only when we get all of the key people (both internal and external) around the table to discuss openly the challenges faced by the organisation will sustainable solutions be found. Operating is a position of openness and true partnership is the way to go. Embrace every part of the supply chain to take maximum advantage of their expertise and knowledge.
Procurement functions are in an ideal position to take advantage of this opportunity – to become the conductor, the facilitator, the devils advocate.
Yes Procurement has a future, but not as we know it presently!