Is the F-35B an "object lesson in the pitfalls of procurement"?

Is it really five years since I last discussed the TAC associated with fighter jets and problems with not getting it right?  Well, regardless of that the Times have now started to reveal the sad story of their investigation into yet another 'flawed' procurement of fighter jets - one commentator says "it is turning into an object lesson in the pitfalls of procurement". Yes, TAC still remain unproven art.

Yesterday's Times had six pages on this 'crime of procurement' and given the long history of implied incompetence of defence procurement globally, I suppose this is an easy target.

While I was immediately drawn to the story with a pejorative attitude towards the procurement when I reflected I wonder if MOD procurement are being fairly criticised.

I do think there are serious flaws if, as is implied, a performance specification wasn't used which would have ensured that Lockheed carry the risk of ensuring vertical take off capability, and that the jets have to open bomb bay doors to compensate for overheating. I think some steps should have been taken to protect against the falling exchange rate, which it is thought will have added over an addition £1Billion. I think it was a mistake not to include the cost of spares from suppliers who could perhaps hide other future profits, after all the MOD will be held hostage to the supplier for the life of the jets. Then there's the decision not to buy a Battlefield Airborne Communication Node (BACN) which will enable secure undetectable communications - let's face it once the enemy knows your position the jet could potentially be up in smoke.

Having said all that, it does strike me that some criticism levelled may not be reasonable.  For example, assuming that there should have been a blank cheque to upgrade the wider MODs protection against cyber attack - you have to have a blueprint with a strategy of getting there but it would be unreasonable to criticise this specific procurement for that strategy.

Yesterday's 'reveal' may only be the first instalment of evidence of a procurement debacle and perhaps the worst is yet to come.   A quick glance at today's diverts attention to the other old favourite, HS2.

Grenfell Tower: Could procurement help reduce the current risk?

Few could fail to be affected by the tragic disaster of Grenfell Tower. Understandably there has been a clamour for a quick response to reduce the risk of a repeat, but I wonder if the potential use of procurement as a speedy risk mitigator is being overlooked.

Attention is being given to having the cladding on something like 600 tower blocks tested and fire inspections carried out.  While that will provide some comfort and be politically expedient it there may be faster ways in providing reassurances to those potentially at risk.

Let's face it for cladding to have been installed there needed to be a specification, a contractor and a completion. Would it not be possible to use make use of that trio for providing a quicker response:

1. Each landlord checks the specification for cladding to see if, with the benefit of hindsight, it satisfies today's safety requirement; (If landlords don't have the capability then perhaps some central support could be provided to QA the specification);
2. If the specification is considered 'fit for today's needs' we then ask the contractor for a written undertaking as to whether they fitted the specified cladding. Failure to give that undertaking could be place the contractor on a 'naming and shaming list' and potentially be taken into consideration in the award of future contracts. Health & Safety legislation and Contract Law could be used to address those who feel short in delivering the specification;
3. If the specification is no longer acceptable then at least we have a short list to progress for further prioritisation;
4. Where the specification is appropriate and the contractor provides an undertaking that they complied, then you can provide some reassurance to residents and move those site visits further down the queue;

If I am correct, this strategy could provide reassurance in hours rather that weeks. Document analysis and quality assurance is at its core rather than the much slower inspection and testing. Is what I propose over-simplistic or have I missed something?

I'm not suggesting there will not be a need for a comprehensive response of testing, inspections, and review of Building Regulations, but that can happen against a background of the proposed prioritisation

Of course, the finger may well be pointed at construction procurement anyway, for example, poor specifying, poor contract supervision and management are obvious potential vulnerabilities, as will be allegations of fraud and corruption!

An Olympian challenge for sustainable procurement and user satisfaction

In a drawer beside me I have a suite of NIAAF medals, yes, surprisingly, some years ago I was an international athlete!  The medals have personal memories attached to them; I can remember something of each one of those races even now, over 20 years later.  The medals are also something of a tangible legacy which I have always viewed as worth passing to my children and grandchildren.  When I received them, even though I wouldn't be able to retain my fitness, I never gave a second thought as to whether or not the medals wouldn't be durable.

I never had any illusion of being able to win an Olympic medal but I'm sure those who have done assumed their medals would last the distance.  Now we learn that somewhere in the region of 7% of the Medals awarded at the Rio Olympics are starting to wane. It is somewhat ironic that the medals were celebrated for their sustainability - materials used included recycled silver and industrial waste.

Olympic medals are unlikely to have been included in the high cost/high risk profile but that doesn't mean they shouldn't have been subject to a risk assessment and evaluated on the basis of fitness for purpose. That fitness for purpose should have included something of the users perspective too.  It can only be assumed that evaluation didn't take place or, if it did, wasn't given a great weight. The Rio Olympics procurement has once again become a talking point for all the wrong reasons.  Wouldn't it have been easier to have got it right and managed the reputational risk!

But the damage through this lackluster procurement also casts a shadow over the approach to sustainable procurement - instead of acting as a role model it now will serve as an impediment. Sustainable procurement doesn't need to compromise fitness for purpose and shouldn't.

Perhaps the lessons from this are:

• Consider the specifications others have used, perhaps through consulting with peers; 
• Place performance and functionality in the perspective of the user;
• Consider the risks to functionality in the specification and award criteria;
• Remember the potential for reputational damage in your risk assessment;
• Test functionality perhaps in the lab;
• Don't compromise performance and functionality for the glister of sustainable procurement PR.

Trump's Procurement policy dividend?

Trump and Brexit have certainly reinvigorated the old PEST analysis and no doubt are yielding plenty of university assignments at the present. From a procurement perspective there's plenty to think about.

It's a few months since I last discussed Trump's procurement strategy. Whether it is a clever strategy is yet to be judged but today's New York Times carries a report that Indian company Infosys will take on 10,000 US hires to deliver to US clients.  This is directly linked to Trump's Hire American Policy.  It demonstrates the potential power of procurement, but while it may make short term political sense and play to the gallery, does it really make good business sense?

Clearly Infosys have decided it is expedient to be seen to be doing the right thing and making noises about hiring American.

The reality that non-US companies have been winning contracts in the past suggests that they have had a competitive advantage, most likely to be in price (labour being the main cost) or quality.

Assuming that US staff will not be prepared to work on the same rates as their Indian counterparts delivered on, will that not lead to bid and contract prices rising.  In the service economy, will US citizens and organisations be prepared to pay the additional costs?  Could the US start to see double bids from companies, one US labour based with a parallel non-US based labour price?

Are the necessary skills available in the US market and is there sufficient capacity to match the demand. We are led to believe that Indiana has offered Infosys $500,000 in training funds and tax credits for new jobs. Of course that is attractive but the implication of the need for investment in training is that the skills do not at present exist.  There will be a lead time in training.

Let's assume that some US citizen now takes up the training - will they be handcuffed in some way to remaining in the US or will they find their new qualification is there ticket for seeking out pastures new, in which case is that not a loss to the US?

Of course, it may well be that Infosys' announcement is opportunistic and they would have been hiring local staff anyway.  That would make more sense to me - take the grants, make the announcement and do what you would have done anyway!

While I do think this is a useful example of procurement demand driven policy change, which I have long advocated in terms of sustainable procurement policy, I don't see this as being a clever strategy for the US economy.  Equally, for the average US citizen, I don't think it will create any new job opportunities, but increase their costs.

If Google and Facebook then ...

How on earth did Google and Facebook fall for such a basic and traditional scam that they have lost $100m by paying false invoices?  If they could, could you also be vulnerable?

I've discussed this type of fraud so often it almost makes me doubt reiterating, yet surely the evidence from both Google and Facebook is that the lessons are not being learnt? If they are being learnt is there a loophole which yet remains unplugged.

1. There needs to be a clear separation of roles between Procurement, Finance and receipt of delivery;
2. Procurement alone should have the responsibility for adding new vendors to the database of creditors;
3. Ensure due diligence in validating creditors bank details;
4. Every invoice needs to be cross-matched with a Purchase Order;
5. Have a regular spend analysis which flags up where the money is going and use that to establish where there are strategic contract gaps;
6. Have contracts on an integrated S2P system or at the very least linked to the P2P;
7. Use the P2P matching to manage creditors payments;
8. Have a strategic approach to procurement risk management.

Let face it, if it could happen to Google and Facebook, it could being happening to you.

You can read more about establishing vulnerability to fraud at the TCS blog or my article. 

Songs of Praise procurement and avoiding unnecessary discord

Outsourcing has now hit the religious broadcasting arm of the BBC and not everyone is singing a happy song.

Some time ago we discussed the BBC's change of weather forecasting provider and the storm of criticism that brought criticism based on whether a non-UK provider could be up to the mark - let's remember that the BBC didn't produce the weather forecasting, merely the transmission of it.

Now the BBC has exposed the production of its flagship 'Songs of Praise' programme to competition, and as a result, it will be outsourced. There does not appear to be any suggestion that the Christian orientated programme will be produced by heretics. No, only that it will not be produced in-house.

Bectu, the union, are "[demanding] better transparency over how this happened"; others fear the loss of specialist expertise in worship broadcasting.

These concerns suggest that perhaps there was a lack of engagement with key stakeholders in the procurement process, and if that was the case, I think that was a mistake. Songs of Praise has built up a strong brand and loyal following since 1961, tampering with that could have been expected to have encountered resistance.

The BBC would be in a stronger position to address criticisms if it had:

• Agreed with the key Church representatives the outcomes to be delivered from Songs of Praise in the future and how it could be improved;
• Discussed with Bectu how best to deliver the desired outcomes in the future and provided some opportunity for the in-house provider to match those expectations within an agreed reasonable time;
• Included Church representatives in the development of its sourcing strategy, development of its award criteria, and tender evaluation;
• Consulted with Bectu on its proposed sourcing strategy and evaluation model;
• Thoroughly debriefed all the bidders and Bectu on the outcome of the tendering process.

Big commissioning changes need to be supported by a change management plan if you want harmony at the end.

Is there a lesson for procurement in Tory's forgotten manifesto?

The suggestion that the Chancellor's advisors simply "forgot the manifesto"  may well be a symptom of incompetence or just contempt for previous commitments but it does have lessons for procurement leaders.  First let's think about the purpose of a manifesto - it sets out the basis on which the political party seeks election and says "if you elect us, we'll do this".  It is a bit like a contract commitment with the electorate. It is a commitment, through choice, to pursue a particular strategy. Simply 'forgetting' that policy commitment and strategy is a serious breach of trust.

So what's the 'forgetting the manifesto' lesson for procurement? Well, I have long since stopped being surprised when I find out that procurement staff are oblivious to the higher-level policies, and even their own prior commitments, which are supposed to shape their decisions.  For example, a commitment that all staff complete anti-bribery training - when you ask the staff when they last completed it they were unaware of such a commitment.  Then there's the Fairtrade commitments, the sustainable procurement commitments, prompt payment commitments, .... need I go on? Breach of all these 'policy' commitments represents a reputational risk at the very least.  Let's face it the commitments are rarely made without a lot of deliberation and business case justification.

Many of those commitments are voluntary but there are also statutory commitments - surprisingly there appears to be little external policing of those, for example, the Equality Act, Modern Slavery Act and Bribery Act.

Strange thing is when you interview staff for a position, quite frequently they can trot out all the relevant commitments!

Is this a case of selective memory or perhaps just ignorance? Both could be factors but they are unlikely to be the only causes.

My suggestion to ensure there is no 'forgetting' is that:

1. Complete an audit to identify and catalogue external and internal commitments;
2. Embed within risk management, yes, even at the top table;
3. Raise awareness; 
4. Ensure no commitments are overlooked through the use of checklists for both strategy and tactical decisions. 

The UK Prime Minister and Chancellor of the Exchequer now appear to have to backtrack due to 'forgetting the manifesto' - surely there's a lesson for procurement risk management to make sure there isn't a similar carryover in your organisation.

Procurement 0.4 - are you at risk of relegation?

An excellent Pilot Study into Procurement 0.4 has recently been published by Fraunhofer Institute for Material Flow and Logistics (IML) and Bundesverband Materialwirtschaft, Einkauf und Logistik e.V. (BME) - fortunately it is also available as an English translation.

Procurement 4.0 goes way beyond spend analytics and Cloud hosted S2P - perhaps we will come to view them as 'entry grade'. In layman's terms Procurement 4.0 relates to how businesses will harness the opportunities provided by the digital revolution.  I say 'businesses' because one of the casualties, if the profession don't quickly start to think in terms of Digital Procurement Strategy , may well be the traditional Function which could be digitised as a non-value adding function out of existence.  Of course, that threat can be turned into a very real opportunity and help shift the wise to being recognised as indispensable due to their valuable strategic contribution!

Nevertheless, back to the IML/BME report, it's based on interviews with leading German procurement managers.  Interestingly, none of whom think it is desirable for Procurement to take on the role of being a 'follower' in driving forward Industry 4.0!

The report envisages Procurement 4.0 will bring significant changes in:

• Technologies and systems;
• Organisation and processes;
• Management and people; and
• Business Models.

Basically a transformation of the function or a relegation of a function?!?  This is radical stuff and I would love to see us see us seizing the opportunity as opposed to being viewed as part of the problem.  A good starting position would be reading the IML/BMW report or my own whitepaper and having a discussion with colleagues to develop your response.

UK Industrial Strategy and more procurement bluster

Today the UK Government released for consultation its new Industrial Strategy.  As has become the norm with this type of business document procurement gets its place in the sun; this time with seven pages.

You can find a summary of the commitments on page 77 of the document but don't be getting too excited; there are only two new commitments, namely, the rollout of a balanced scorecard approach, and the trailing of different aspects of supplier feedback. There are proposals on page 72 on what the Government hopes to do to make use of procurement as a tool for innovation, and to be truthful I quite like the suggestion of 'innovation review points'. But I don't actually see anything which jumps off the laptop at me and shouts "WOW!'. Actually, perhaps it does merit a "wow" but only because of frustration and despondency.

There is almost a necessity for Government's to make a fashion statement creating the illusion they plan to really use procurement. Sadly, then there is a complete lack of accountability and performance management to make sure it is implemented. It takes on the feel of smoke and mirrors and political rhetoric, then, all too often is forgotten.

Perhaps, now is the time for CIPS to grab the bull by the horns and, rather than a submit a politically correct and polite consultation response to shout loudly, "Just Do It".  Even better if CIPS could be part of some sort of performance management structure for the procurement chapter's implementation!

The Government pose the consultation question: 'is there more can be sone through public procurement to support innovation?'  For what it's worth I made recommendations on how procurement could contributed to a manufacturing strategy four years ago, back in February 2013. Perhaps some of those recommendations were too adventurous but of my 18 recommendations, I think one stands out:

Revisit Procuring for the Future, Innovation Nation and the Department of Health's National Innovation Procurement Plan implementation, establish what impeded uptake, what worked and address the lessons learnt - my own impression is that they lacked a supporting change management strategy and the associated resources.

Procurement Fraud on the increase - you are vulnerable too

The 2016/17 Global Fraud and Risk Report by Kroll has just been published and it indicates an increase for 17% to 26% in 'vendor, supplier or procurement fraud'.

We've been discussing procurement fraud for some time and only yesterday Spendmatters' Peter Smith raised the question of why those involved risk their careers and potential jail sentences for such low returns. I think the answer to Peter's question is not only greed but the probability that the perpetrators will not be caught and the easy of completion.

What I have often come across are processes which are so fundamentally weak and lacking in robustness that I remain amazed how organisations are not more aware of the significant risks they face - are they in denial or just unaware?

The reality is that no organisation can have zero risk of supplier, vendor or procurement fraud but all can certainly take steps to reduce vulnerability - you may find my whitepaper of interest.

The publication of Kroll's Report provides an opportunity for those in procurement to highlight this risk, ask how it is being addressed corporately, and take the lead in developing a robust approach. Let's remember that the Bribery Act places a responsibility on organisations to prevent fraud - that's not passive but about being proactive in identifying vulnerabilities and taking steps to reduce the risks.

NI Executive Daft Procurement Strategy leak

Amongst documents which have come to light as part of the conspiracy to undermine the Northern Ireland Executive was a Strictly Confidential Draft, trail blazing, Procurement Strategy. What will surprise the wider Procurement community is that the Strategy was developed in anticipation of the Brexit result and freedoms from the constraints of EU procurement legislation. The introduction makes the claim that the Strategy is innovative in aiming to both disturb and confuse the market so that the Procurement function can ensure best use of 'relative' power-sharing and be held up as an exemplar across the world - opposition cynics allege this justification was no more than a ruse to secure speaking opportunities at exotic locations!

 The key aspects of the strategy are:

• Disaggregation of spend so that wider benchmarking of prices is possible and, in parallel, provide an opportunity to improve the negotiation skills of local buyers;
• A shift from digital procurement solutions to paper-based in the hope that micro-businesses will be able to take on global competitors who have become reliant on bidding through eProcurement solutions;
• Use of collusive bidding clauses to ensure that market dialogue opportunities are maximised; 
• A shift to 'highest bid wins' in keeping with the wider NI Executive's Value for Money approach;
• To take some of the heat out of the heavily criticised RHI, green energy scheme, the feasibility of an Orange Supplier of the Year will be tested - this is not as bizarre as it sounds since, in recent times, the Health Minister issued a diktat that biscuits would be replaced with satsumas for departmental meetings.    

Given that the NI Executive has now crumbled we may never know whether the Strategy would have delivered the anticipated benefits - time will tell though whether others adopt a similar approach.

Pirates of the Specification

Buying ships shouldn't be such a big deal if you've a legacy of being one of the great naval nations of the world; you'd have had experience of buying ships to cope with the ice of the Antarctic and the dealing with the Pirates of the Caribbean. Therefore, for many it will have come as a surprise that £1bn of warships are breaking down in the Gulf since the water is too warm, leaving crews vulnerable!!!

The contractors claim the MOD didn't tell them about that particular potential usage, even though the UK has been engaged in flighting there since 1990, if I am correct, and in truth we could go back centuries. Have the MOD locked themselves into a strategy which requires a portfolio of ships which can only be used in restricted climates?  If that was the case, the old news stories of warships being redeployed from various parts of the globe to potential conflict areas will be no more, for the simple reason they wouldn't work.

Setting that aside, now it looks as if a refit of these particular Destroyers will be necessary.  

I assume the courts will have to decide who picks up the cost but already it looks as though the contractor is trying to escape liability by resorting to the technical specification set out by the MOD - in other words Rolls Royce complied with the letter of the specification so it's not their fault: 

Are the conditions experienced in the Gulf in line with that specification? No, they’re not. So the equipment is having to operate in far more arduous conditions than were initially required (Tomas Leahy of Rolls Royce).

I assume we will hear eventually if the MOD used a solely technical specification, but this must serve as a warning to all those who do that using a solely technical specification shifts the burden of functionality to the buyer. To me there will always be a basic need for technical specifications but they need to be accompanied with functional and performance specifications; and when a service is involved, outcome specifications.  It certainly looks, at face value, as if the MOD set aside the functional and performance aspects, and, if that is the case, why?

But there's another question here, what about all the talk of supplier partnerships and innovation transfer - was that a one-way street from the MOD to the market without reciprocation? The relationship between the MOD and its strategic partners now looks as if it has suffered a major set-back and will take some time to recover.

To me there is one lesson for all procurement professionals here: never resort solely to a tec spec.

Another misreading of relative power in buyer/supplier negotiations

Once more we learn of what looks like another misreading of relative power in buyer/supplier relationships; this time M&S.

There's no need to retell the whole story which was published in today's Sunday Times, but it appears M&S, by pursing a responsible sourcing strategy, reduced its potential supply base and therefore ease of switching suppliers. Then, in response to the weakening exchange rate following the Brexit vote, refused to work with suppliers in addressing their cost increases, but instead said they were going to consolidate the supply base, therefore exerting power over suppliers yet reducing suppliers long-term 'skin in the game'. Then, facing potential loss of supplies (relative supplier power) have now had to backtrack on their earlier assertion and accept supplier price rises.

Not only has M&S lost face in this foray they have needlessly sacrificed supplier goodwill and trust, and quite possibly lost credibility in their narrow interpretation of responsible sourcing.

I do not understand why procurement strategists appear to spend insufficient time thinking through potential scenarios and likely supplier responses; they would benefit a lot from game theory by considering "how might our suppliers respond". M&S don't seem to have thought through potential outcomes prior to pursuing any of the above approaches.  'Power' appears to be viewed solely as one-way and risks dismissed.

As we start 2017 I doubt this will be the only example of misreading power in buyer/supplier relationships - why is that; why are we so poor at learning lessons for others?