Opportunity Knocks but can the NHS shine in buying music lessons?

Personal Budgets have been around in local government for some time.  They are now to be rolled out so that anyone within the NHS Continuing Care programme will be able to request their own Personal Health Budget. What does this mean and are there implications for procurement?

In theory Personal Budgets are the lowest form of devolved decision making you can arrive at and they maximise user choice. The person in need of care, rather than being told 'these are the services you will receive' is given a budget to purchase what they think is most helpful to their personal situation. This could include buying a dog for company, paying for music lessons, or, ... . Theoretically there is no reason we couldn't have the next Choir of the Year made up of recipients singing a song on their experiences of Work Capability Assessments!

£2.7bn a year will be spent on the programme - but could it be spent more effectively and will procurement expertise be drawn upon?

I would like to see commissioning, social services staff and those closest to the future recipient to help design the potential shopping list of services which may be required. I would then like framework agreements put in place which the recipients could access. If the 'price is right' and the quality matches the users need, then the recipient could 'call off' the framework.

Of course for recipients ease of access and visibility of the catalogue would need to match their experience of online shopping - could the NHS beat the best in the use of social media functionality for Personal Budget purchasing?

You may ask:

Effective contract management is consistent service delivery to standard

Supply chain management, Paralympics, IT, sponsorship, risk management, assessments, Glasgow 2014 Commonwealth Games, design, sponsorship, supply risk management, and contract management are within the interesting mix of tags I could have used for this blog. What's the link?

Blurred by media discussion on the DWP Work Programme and the Leveson Report, November also saw the release of the Harrington Report on Year 3 of the Work Capability Assessment. SCM features.

You may be familiar with the WCA and the furore over Atos sponsorship of both the Paralympics and Glasgow 2014. Atos are the public facing part of the DWP Work Capability Assessments. Atos are the perceived 'bad guys' who say whether disabled are fit to work and therefore should lose their benefits. Atos get the blame. It is on 'profits at the expense of disabled' cry that they are not deemed a suitable sponsor.

Therefore, Atos are a contractor who is 'perceived' to hold the power of 'yay' or 'nay' for benefits. To the claimant Atos are not only DWP's representative on earth, they may as well be the DWP. Perceived poor Atos performance reflects not only on DWP but on the Government's welfare reforms. That's where the supply chain meets the customer (in this case the claimant). But upstream are the actual decision makers. Atos are caught in the middle. Given that key role in a supply chain one would expect to see very tight contract management and client led performance management.

Bad Pharma - procurement book review

I suspect that Ben Goldacre's 'Bad Pharma' would not immediately come to mind as a recommended procurement read. Let me correct that misconception. While the book is primarily about the pharmaceutical industry, it has a sub-plot of market manipulation of buyers. It highlights how sales-forces, conferences, professional bodies, advertisements, magazine articles, and even academic journals are used to manipulate, within strategic marketing plans, to deliver sales. It is a book which should be read by every procurement manager, regardless of industry - all those who touch the edge of procurement decision making need a healthy level of scepticism, if we are to deliver the best deal. If you are in doubt about its relevance, then I would ask you: 'how have you have formed opinions about the percentage savings anticipated, the basis for selecting some procurement solutions, and the judgements on perceived 'best practice?'

However, the book, like Goldacre's earlier 'Bad Science', should also be on the reading list of anyone undertaking research or involved in the peer review process. I have no doubt that rigour, reliability and validity in research would be improved. A good thing all round.

On the downside

Policing police procurement: Suggested questions for Home Affairs Select Committee

Scrutiny of public procurement is a good thing but it also needs to be informed and pragmatic. I'm not aware of any impact assessment having been carried out on the required publication of local government expenditure, but it appears far from achieving its original objective cost effectively. We now have Police and Crime Commissioners, it will interesting to see how they address procurement.


However, Tuesday 27th will bring the Metropolitan Police procurement spend of £35bn under the scrutiny of the Home Affairs Select Committee.

Unless care is taken, there is a real danger of the Committee diverting its focus to what's been bought rather than was it bought well. Looking in the rear view mirror trying to understand why £500k is spent clearing horse manure may well set the pulses racing but this shouldn't be a version of scrutinising MPs expenses but something fundamentally different.

In an earlier blog I suggested questions the Home Affairs Select Committee might ask in its inquiry into the Olympics Security debacle. I suspect they missed that blog. Nevertheless, in the spirit of citizen participation (and also helping those in the Met prepare), I would suggest MPs focus on the following:

"... You can't have one without the other": Responsible procurement & Supply Risk Management

Over the last few weeks I have devoted quite a few words to Supply Risk Management. However, SRM has a partner, responsible procurement or CSR (Corporate Social Responsibility) - the two go hand in hand, as the old song goes "you can't have one without the other".

The news that at least 112 factory workers have been killed in Pakistan is a terrible shame. However, it is also a terrible inditement on supply chain management if these workers lives were sacrificed as part of the quest of cost reduction. I discussed a few weeks ago the Health and Safety issues associated with an iPhone5 strategic supplier.  I hope those turning a blind eye to SCM worker safety will remember that procurement can be responsible for bringing about change, and potentially reducing the risk to workers lives who may not otherwise have had a voice.

On Social Impact Bonds

Social Impact Bonds are quite an innovative 'payment by results' approach which includes up front investment - you can find good explanations of SIB on the Social Finance and  Young Foundation websites

However, you could paraphrase SIBs as: 'PFI meets Big Society'. Similarities being the drawing in of investment to drive an outcome-based delivery which, had the public sector not been starved of cash, would normally have been public sector funded and managed. They should encourage innovation and be user focused in design (something which we have discussed over the last few days).  Of course investors expect a return, which they are due if the designed intervention works. That return can be a long way away.  Some big issues must be that:

Designing to fail

Theory: To design better public services, listen to service users, hear their pain and happiness, and let them shape the service. Pilot, or better still prototype and test. Learn from the pilot. Refine. Make sure you have allocated sufficient funds. Risk assess and manage risks. Train users and and deliverers.

Practice: Announce shift to Universal Credit benefits system from October 2013. Plan to pilot in April 2013 (i.e in Spring and Summer). HM Treasury state in 2012 no more money will be available to introduce new system - NB before the pilot. Base delivery design on an unrepresentative sample, namely "reflect the experience of working people". Acknowledge that those delivering the service do not have the manpower or skills to teach users how to use the internet, even though the deliver channel is internet.

Dependencies: Appropriate IT system.  User/IT interfaces fit for purpose. Potential outsourced delivery partner with capacity and capability to handle big bang roll out.

Risk: High risk of voter dissatisfaction. High risk of displacement of problem from one budget to another. High risk of service users not being able to access service on run up Christmas 2013.  High risk of users not having access to services in as winter weather approaches

Time of impact: Just as users, friends and relatives start to think of who they would want to govern them for the following five years.

Outcome: Potential design to fail case study aimed at providing useful lessons for the future training on:

"We were trying to get them to think about products from a supply chain and user-experience point of view rather than in terms of policy roll out."

We're on a road to nowhere ($3.7m cost)

Great song that it was, if you happen to be in the area of Clare County Council, I suggest avoid singing Talking Heads' 'We're On a Road to Nowhere'. They happen to have provided one of the most interesting examples of stupid sourcing I have come across - a case study which will just keep on giving.

The cash strapped council invested $3.7m on a road (450m in length), most of which was completed three years ago, yet so far it has seen no traffic. The council didn't have all the cash to hand at the time to fund the scheme, so funded $3.2m of it through an overdraft. I'm sure you can guess the overdraft facility was not cheap.

It's not that the road is actually going nowhere, on the contrary it is going in the direction of an Information Age Park, but stops 200m short.  That 200m is to be paid for by the developer who, surprise, surprise isn't making any profits.

The big idea at the time was that the Information Age Park would create 4,000 jobs. But the developer needed funding from the council to temporarily fund the road construction - temporarily, in that the developer would repay the council from the income generated through the Information Age Park.

That's my understanding of the report in the Irish Independent  (21 November) - you just couldn't make it up.

Where do you start in drawing the lessons?

1. Was there an economic appraisal?
2. Was a risk assessment carried out?
3. If there was a risk assessment, was risk then managed?
4. Were gateways reviews used?
5. Was the price paid for the road a good rate?
6. What undertakings were received from the developer?
7. Was due diligence carried out on the developer's proposal?
8. Would the council be better paying for the remaining stretch of road?
9. What has happened to the Information Age Park?
10. Who was best placed to finance the risk?
11. ...

This appears to be a particularly bad example of public procurement, let's hope lessons are learnt and that it is not something we see repeated as the public sectors reduces its headcount of professional procurement staff.

Designing better services

I sometimes think what's lacking in government policy making is a really good institutional memory and a broader outlook. The real benefit wouldn't be in recycling old policies but in 'ah we tried that before and if we want it to work this time we would need to ..."

The reason I say this is that I have now learnt that senior civil servants recently received training from the Royal College of Art in the hope that they would be more creative and think about how public services could be better user focussed in design. One of the speakers has been quoted as saying:

"We were trying to get them to think about products from a supply chain and user-experience point of view rather than in terms of policy roll out."

A good starting point could have been considering the success of the Nesta Creative Councils initiative or indeed what happened with Innovation Nation. So, learning from those successes and failures would point to: 'ah, therefore, this time we would need to ...'.  Isn't that what you would expect from good policy advisers?

Although I may be doing them an injustice, I suspect that the attendees are not personally known for creativity and design in either their public or domestic lives. I also suspect that they have a civil service centric approach to design - by that I mean 'we can best interpret what the user needs and wants in service delivery'. So while they may have left the training with new colouring books what they probably needed most was a blank notebook and the removal of their pens - were that to have happened they would be dependent on others stating the problem and writing the solutions.  Hold on, haven't we been here before, isn't this specifying by outcomes!

If we want to be creative in service delivery, we need to

Big Data, Fukushima and applied research to support procurement

There haven't been many procurement lessons learnt from the Japanese Fukushima disaster. It is also rare that we hear of any useful applied research in SCM and Procurement. So when both converge in a Financial Times report on the work of Manchester Business School with BMW my attention was grabbed.

The background report itself is an interesting story relating to Supply Risk Management and development of an innovative tool. Specifically, following the Fukushima disaster, one of BMW's tier one suppliers couldn't deliver due to a lower tier subcontractor being within the Fukushima fallout zone - as a result BMW identified a need for greater supply chain insight. That need seems to have led to the students developing a tool for analysing internet content (Big Data), which could help with supply risk management. The tools being tested at the present are reported to: "read, search, sort and select large amounts of information in a systematic way, building up real-time profiles of each supplier and sub-supplier". That strikes me as a clever tool.

Of the examples cited one identified a risk of a supplier being unable to pay wages through content found in a local newspaper, while another relates to identifying a new supplier in Mexico.

It is not clear whether MBS are developing a marketing plan for their solution, but hat's off to them and the potential to reduce their student debt.

If it's broken reach me a hammer, an antibiotic or procurement strategy

Some of my earliest memories are of my grandfather's approach to technology fixes. Despite seemingly being able to fix any problem with bicycles, motorcycles and cars; when the TV appeared to have a fault his first solution was to give 'the box' a delicate 'tap', well, aggressive thump. Surprisingly his solution seemed to work! I didn't inherit his DIY expertise, except that I do frequently view a hammer as the solution to whatever is broken - sometimes it is the right tool for the job but on other occasions it has cost me a lot to have my solution rectified!  

Over the last few days we have learnt of the medical equivalent - the prolific medical and self prescribing of antibiotics. Now I have a personal affection to Penicillin. When my father was a child his parents took a risk with the experimental drug being used on him - there was everything to gain as he was expected to die. This time last year I was having as many antibiotics administered as my system could cope with. But Alexander Fleming warned about overuse of antibiotics - using the same solution could be expected to reduce its effectiveness. Now his prophesy is being fulfilled. 

While we recognise these flaws, how good are we at recognising that there is a tendency to do the same thing with procurement strategy. We tend to one approach and that's the answer, regardless of appropriateness. Sometimes the solution is much more extravagant than is required, but yet provides some satisfaction to the advocate. Sometimes the solution is inappropriate and others would have been more appropriate.  Sometimes, because there is a trend within the profession to adopt one approach, we follow the pack, yet, pursuing the opposite approach may actually deliver a superior result, for example, buying spot frequently beats the framework price! 

I am not advocating being a maverick. I am advocating competence in a wide range of procurement tools and being sufficiently astute to carry out a wide options appraisal of those solutions prior to selecting the most effective tool for the job. It may be a hammer, it may be an antibiotic but too much of a good thing, or using the wrong approach can end up being a very, very bad thing.

Did procurement bring down BBC Director General?

I have been a devotee of Newsnight for many, many years - I would even go so far as to say it is my favourite viewing. So the debacle related to its handing of child abuse scandals is really disappointing - but was this a Supply Risk Management disaster waiting to happen?

Let's rewind. The BBC has been on a cost reduction strategy for some time; outsourcing programmes, contracting with its front-line 'names' as opposed to employing, and now it has all the appearance that it may have outsourced quite a bit of its investigative journalism to the Bureau of Investigative Journalism.  It was the BIJ who appear to have had the commission from Newsnight and led most of the investigation into the abuse claim and it was a BIJ journalist who sparked the Twitter flurry which has ultimately led to the resignation, last night, of the BBC's Director General.

Newsnight appear to have outsourced one of its strategic assets: investigative journalism. That may have been fine had they not also failed to quality assure the outputs and manage the contractor's opportunistic pursuit of glory through the posting of 'The Tweet that did it'. While we recognise that the DG appears to have had a remote approach to delegation, when you are managing such a strategic issue as the potential credibility of an innocent, high-profile politician, who must have been in the inner-circle of Conservative politics at the same time as the BBC Trust's Chairman, you are really putting yourself out on a limb.

I really hope Newsnight will not be sacrificed in the witch-hunt, but there is a procurement lesson here: be careful what you outsource/partner, identify and manage the risks, and always remember that a lack of Supply Risk Management can bring down even the top guy!

Tarzan leaves no stone unturned in pursuit of growth: even in procurement

Chapter 4 of Michael Heseltine's report, 'No Stone unturned in pursuit of growth' may come as a surprise to some, in that he recognises procurement is strategic to a national growth strategy. It represents a significant step forward from Vince Cable's Vision which I have previously discussed.

Although quite late in the chapter (para. 2.21), Heseltine answers the exam question I wish CIPS would ask, namely, 'What is public procurement for?'  I couldn't agree more with his view:

The simple answer is to secure value for money for the public purse. Who can argue with that? The problem is that it is often equated with short term, lowest cost procurement which ignores the issues about the country’s industrial base – the exploitation of R&D, the skills we need and the creation of jobs. It also ignores international practice. No country of which I have any knowledge takes so simple a view. Although crucial in major policy areas such as defence or aerospace, the same issues are everyday challenges for ministers whether they are placing contracts for high speed trains or new IT systems. We are concerned about the destiny of our manufacturing sector but we do not spend enough time exploring the ways government can work to support it.

Heseltine is also brave enough to express views others may not have, for example,

Apple in the PRM blender yet again

Regular readers will recognise that I have been following a Supply Risk Management train of thought for some weeks. Linked with that is a forthcoming debate piece in Public Money and Management - I hope you will find that interesting, particularly those in the public sector.

However, you will also recall that I have been considering the SRM implications for Apple and specifically the iPhone 5 (you can pick you the blog trail here and here). The SRM issues for Apple just don't seem to be going away - today we learn that the Chairman of Foxconn, a strategic supplier, has announced:

"We can't really fulfil Apple's requests. Our shipments are insufficient ... given the huge market demand"

 Shares in Apple have, not surprisingly, fallen!

Meanwhile what will happen with the supply chains and shares of Sony and Nokia?  Have they alternative sources of supply? Who, in the customer pecking order, will Foxconn favour in terms of customer preference?  How will the various buyers, who compete in the marketplace and supply chain, have positioned themselves as preferred customer?  Which of the competitors has best positioned themselves in terms of SRM? While some believe that Foxconn has excess capacity elsewhere, what due diligence was completed on the basis of potential aggregated demand?

This is a fascinating saga which has implications right throughout the mobile technology world, but the lessons learnt should ring out for all CPOs.

When procurement strategy meets drugs war

I've discussed suppliers holding buyers to ransom as a result of the financial crisis (for example Comet and Lotus) but I never thought I would discuss pharmaceutical suppliers holding cancer victims within a country to ransom. Yet that is exactly what is happening as state run hospitals in Greece are deprived of bowel cancer drugs by German pharmaceutical company, Merck.  Of course Merck have a justification in that the pharmaceutical industry are owed £1.4bn by Greece and there is an hint of corruption about how the Greeks have resold previously supplied drugs.

On the other hand we also know that the pharmaceutical companies have a history of harvesting excessive profits and are not without questionable morals.

But will this lead to an increase in health tourism and Greek patients travelling to other EU countries for treatment?  Will that merely displace costs from one country to another and have a detrimental impact on the health delivery in those countries?  Equally, will the EU have to pick up additional costs as patients who may otherwise have been treated have require more expensive support?

The personal price to patients and families just couldn't be calculated and whole life costs take on a much more literal meaning.

This is really high-level European Procurement Strategy and a much more worthy topic of debate than whether or not Channel #5 is dangerous.  An innovative response is required and the leverage of all European country health budgets brought to bear before lives are lost unnecessarily.

Procurement sums up at the House of European History

The EU's House of European History will double its estimated £58m cost to £112m, while its annual running costs are estimated to soar by 80% to £12m per year. Part of the cost increase is said to be the finding of an underground river; were there no historical records of the river? When the underground river was located, were the additional costs fully understood and the business case reviewed prior to continuing to pour money into the project?  These are fairly obvious questions.

However, I think the real scrutiny should be on the calculation of running costs. The previous example of the Scottish Parliament construction suggested that the recurring costs of window cleaning had been unnecessarily increased through a poor design of windows.  But why have the running costs of the House of European History increased so dramatically?  Were they miscalculated at the start?  How many years have they been based on?  What was previously not included that now needs to be included?  An 80% increase on running costs suggests something was seriously wrong, a lack of due diligence, and a lack of scrutiny! We know that good procurement should be concerned with Whole Life Costs, and that capital costs frequently are far exceeded by ongoing revenue costs.  In fact there are plenty of examples of ongoing revenue costs leading to decisions being made that some investments can no longer be sustained.

Either way this is another example of poor cost estimates and/or poor procurement. But it also strikes me as weak project management and risk management. It begs the questions: 'Where will the line be drawn in cost overruns? and 'Who will be accountable for the additional costs?'  It can be assumed that European citizens will pick up the tab for something which the vast majority will never set foot in. Surely, when reviewing EU procurement there has to be scope for exploring a shift of responsibility from the  client having to pick up the tab when their advisers get it wrong. (I have previously discussed the deference given to experts.) 

I think there also needs to be some form of policy shift, particularly when citizens are being faced with austerity and asked to live within their means. Why can't tolerances be set within which projects have to be delivered; if those tolerances are exceeded then there needs to be serious and meaningful expert or political accountability?  Had such a tolerance been set perhaps this history lesson would have stopped once the underground river was located and the burden of an additional 80% of annual running costs laid at the feet of those who got it wrong, as opposed to being passed to the innocent European citizen.

Anyone want 2,400 laptops?: A cautionary tale of shared procurement.

It could be a very good time to buy a cheap laptop; but would you want 2,400?  If you do, now's the time to contact Torfaen Council in Wales.

Believing they were buying laptops on behalf of three councils, they discovered that one of their partners did not share that view. The council which opted out of the purchase claim they hadn't made any commitment as it was their view the business case didn't stack up:

At no point did the city council make a formal commitment to the project and we were surprised when we learned that Torfaen had undertaken this procurement.

I suspect that all three councils will think twice before their next purchasing collaboration.

This should not be viewed as a case against collaborative purchasing, but instead a demonstration of the need to have clear written agreements in place between partners prior to entering into any contractual agreement with the market.

Perhaps, the impact could also have been reduced had they merely entered into a framework arrangement with no commitment to purchase. The strange thing is that previous questions, which appear to relate to the same contract, seem to suggest that no confirmed quantities had been given:

... in reference to the 400 unit figure quoted in the original tender, that suppliers were told that this was no indication of the number of units it would purchase in future... We told suppliers the quantity of laptops that we had purchased in the previous financial year and advised that there was no guaranteed usage for the contract period.

If this relates to the same laptop contract then things could get even more messy since there were issues raised previously regarding the mini-competition evaluation approach with the projected demand being a clincher in the award.

It is not clear if Torfean's supplier has taken any steps to support the council in reducing the impact through selling on their behalf, but if you happen to see 2,400 unused laptops, just out of warranty, on eBay or Gumtree, this may be a good time to contact the seller direct.

Comet brought down by supply chain

If you are one of the 7,000 employees of Comet, the high-street electrical retailer, you could understandably not share the euphoria or even care that the UK has allegedly come out of recession. You may also feel that managing the economy is nothing more than rhetoric -  real-life makes you wonder what happens to you when Comet goes into administration next Thursday.

Just as alien will be the language of SRM, upstream management, and trade credit insurance but they are what is really behind the predicament.

As we have been discussing all too often in this blog, cash flow and the absence of credit are throttling businesses - Comet is just the latest high profile casualty. The banking crisis now has a different meaning!  Yet at the same time suppliers are considering the risk of whether their customers are a good credit risk.

This is another twist of the Lotus discussion, but this time the problem appears to be Comet's difficulty in obtaining trade credit insurance.  Trade credit insurance would provide protection to suppliers in the event of Comet's failure.  Ironically the risk of failure is increased as a result of a lack of suppliers confidence - it's a vicious circle.  This is calling for new procurement skills and strategies; the need to reassure the supply market that the buying organisation is a good risk.

Yet at the same time how much of a suppliers lack of confidence is coloured by a lack of buyer humility and benevolence having been shown to the supplier when performance was not as well as expected.  To a certain extent 'the ball is now on the other foot'.  But there's also a systemic risk - how can buyers convince their Accounts Payable of the need to accelerate payment.  Could this be the time for pCards to step in with the card issuers effectively providing the trade credit insurance? Could/should the government intervene?

I recently discussed Supply Chain Financing although that was from the perspective of the buyer supporting the supplier. This is different with suppliers potentially holding buyers to ransom - will they take the risk?  Will suppliers seek to renegotiate prices and terms in return?  It is clear that the aftershocks of the financial crisis are like an electrical current with shocks going up and down the supply chain but increasing in magnitude, velocity and frequency.