A very political procurement

In 2012 I published a paper on International Lessons on Austerity Strategy - one of the key lessons being the  advantages of having projects 'shovel ready' so that you could deploy procurement to stimulate the economy and accelerate the recovery. That meant planning approvals gained and availability of construction resources 'ready to go'.

If you did that you could reduce unemployment and the human trauma which accompany it, you could also shift from paying benefits to receiving tax and national insurance income.

Today we learn that more than 200 projects are being announced to rebuild Britain - all to start during 2014/15. Some would scream "why weren't these measures taken much earlier to prevent the flooding and now dangerous condition of our roads?".

Of course the cynic could also say this investment is political - designed to create jobs and have a visible impact of 'something happening' in the run up to the election.

The spotlight now moves to the procurement, project management and risk management of over 200 major projects. If the procurement is successful the next election will see a celebration of successful delivery of improvement public services, local economic development and jobs. If the procurement is unsuccessful the spotlight can be expected to be on procurement blame.

Perhaps it is timely that Locke has just been released!

I have absolutely no understanding of the preparations prior to this announcement but it will be a significant test for the Major Projects Authority too. I assume that someone has checked the capacity to deliver on what could become a very political procurement.

Scepticism is a procurement virtue

We all hold up Harvard, home of the HBR, as having a reliable voice worth listening to. That's where Michael Porter's 5 Forces, value chain and so much of procurement's basic academic theory derives from.  Yet we have now discovered that two of its esteemed professors, who influenced UK austerity strategy, got it wrong in their research. Fortunatelty one of student, Thomas Herndon, a PhD candidate (pictured), had the sense to question their data.

There is a not insignificant problem though in that the Chancellor may relied on Reinhart and Rogoff's flawed evidence which told him what he wanted to hear about austerity strategy, even though it has now been proved wrong.  But Osborne is not alone in being gullible.

We have also learnt that a key influencer in childcare policy was feted yet without much testing of his credentials.

Then we have the health nightmare unfolding in Wales as a result of the nonsense propagated by the now discredited Dr Andrew Wakefield over the dangers of MMR vaccinations. Many of the population, including the Lancet proved gullible.

That's not to mention the £50m spent on fake bomb detectors.

Is there not something which suggests that when you get someone who is coming up with a 'flat earth theory' you maybe should test a bit more, after all is that not what the scientific method is all about. The   student who have the bravery and tenacity to challenge the findings of the two Harvard professors was not welcomed with open arms but has been proved right.

As procurement professionals perhaps we also need to be bravery, more tenacious and sceptical.

Two examples of what I mean in terms of procurement: I recently critiqued a bid and found 25 assumptions stated by the bidder - when the buying organisation were challenged on the assumptions I found that raised a hare in terms of readiness to accept the bid without being contractually open to additional costs and risks. Secondly, some 20 years ago, I was asked to review a recommendation for a tender award a few hours before it was to be recommended to councillors for acceptance. I received many cynical looks when I strayed beyond my 'look at the process' remit and revealed that the 'numbers just didn't add up'. Of course the "specialist consultants couldn't be wrong" - well actually, sorry, they were wrong.

We should use the low risk option of questioning validity in procurement more often - all we need is to be more sceptical and recognise that scepticism can really add value.

So, why is it so difficult to be a sceptic? Isn't scepticism a procurement virtue?  

If C = 7k, and J = 2k, how many will suffer @ HMV as a result of suppliers calling the tune?

I assume you have recognised C is an abbreviation for Comet and J an abbreviation for Jessops.  The number refers to the number of anticipated jobs lost as a result of suppliers 'calling the tune' and leading to the firms going into administration.

Tomorrow, it is expected that HMV go into administration, once again as a result of suppliers 'pulling the plug' - 4,000+ employees are vulnerable. By 'calling the tune', in HMV's case, we mean suppliers not responding to the request for £300m of additional finance to pay of bank debts.

His Master's Voice must be crying out, loud and clear, to the Secretary of State for Business, Innovations and Skills, and the Chancellor for a strategy which halts the high street decline and can address credit guarantees. Banks were 'to big to fail' - what about retail? The demise of the high street seems to be accelerated by web sales but we must also be reaching a tipping point when shoppers are too depressed and demotivated by the sight of vacant shops to bother.

But will supplier short-termism have jeopardise their own future? Suppliers need buyers as a channel of distribution. Suppliers also need to reflect on how other potential buyers may view their 'short-termism'.
I am reminded of the Caesars and their demonstration of supreme power in deciding who would live or die in the gladiatorial fights. But I am also reminded that neither the Caesars

However, like a broken record, I have been reiterating time and again that Procurement Risk Management needs to be proactive in addressing what has manifestly become a real and present strategic risk.

Jessops snaps: another buyer brought down by suppliers

Founded in 1935. Brought down by post-Christmas credit squeeze from suppliers. 2,000 employees no longer smiling for the camera.

I'm not going to repeat what I have cautioned previously about Lotus Cars and Comet. it's suffice to say that another vacant lot will appear on many high streets now that Jessops has gone into administration. Brought down as a result of suppliers losing confidence in their buyer (although it is fair to say that the integration of cameras in mobile phones must have increased the risk).

This brings additional personal stress for 2,000 employees - the real casualties. That's 2,000 individuals who were 'strivers' and voters, who along with their families may not be particularly benevolent at the next local and general elections!  It also begs the question 'Is the local government strategy to revitalise the high streets fundamentally flawed?' Those responsible for local economic development strategy could benefit from procurement risk management insights too.

For procurement practitioners it is another lesson that power in the buyer/supplier relationship has fundamentally shifted. It is only a crazy buyer who wouldn't now recognise that sellers, more than ever, may be their nemesis or even always available - sophisticated supplier strategies are now required as part of procurement risk management. (I also alluded to this yesterday when I discussed the ability of MoJ to assume the third sector would always be at their beck and call).

You have been warned and warned and warned!

P.S. 11 January 2013: The Times has interestingly made the following comment today:

"It is believed that last year Jessops began to take a more combative attitude towards the big Japanese suppliers, such as Nikon and Canon, which resulted in relations deteriorating." 

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,

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.

PRM: stepping in where banks fear to tread

I've discussed SRM a lot lately - more often than not about the vulnerability of firms which do not take it seriously (you can pick up on the previous discussions here).  So learning of Rolls Royce and GlaxoSmithKline stepping in where banks have feared to tread, by providing supply chain financing, impressed me quite a bit.

Rolls Royce have stepped in to lend £500m to small suppliers as a result of banks failing to do so - prior to the Global Financial Crisis there had been no need to.  It's not clear how much GSK have lent. Honda haven't actually lent any money but they have spoken up on behalf of their suppliers so that they can obtain bank finance.

This has to be a strong demonstration of true partnership working.  I would like to hear the government had learnt from this and were going to do similar.  However, it may be more pragmatic if the government introduced an incentive for others to do likewise by under-writing some of the risk the buyers have taken on.  If that were the case, and the offer was extended to public authorities too, I could see this being just the type of initiative which could encourage SME investment and accelerate the UK recovery - let's wait and see if the Chancellor or Business Secretary think so too, mind you I'll not hold my breath.

A plan G for the economy

While yesterday's fall in GDP has taken centre stage in political debate at the moment, it was hardly that big a surprise. The drop in GDP is blamed on a 10% reduction in the construction sector. Yet a fall in construction was predictable as the Olympics projects drew to a close, and there was a failure to make shorter term infrastructure investment. What surprises me though is that we seem to have forgotten that the Olympic investment probably provided an early unintended cushion to the global financial crisis.

Now we have calls for a Plan V, even though Vince Cable, the consummate politician has made it clear he is at one with the Chancellor.  Well let's be honest, who in their right mind would want to take on the economic strategy at the minute - is it not better to be in a position where others argue you would do a better job and you can ride the crest of the popularity wave without being called to account.

However, there is no doubt we are in a bit of a mess and some politically palatable solution is required - so, for what it's worth, here are ten suggestions for a Plan G: