On 'Lots' within a sourcing strategy.

Peter Smith posted an interesting post a few days ago on 'Lots' (breaking up potential contracts into smaller packages). His post was a follow-up to a previous discussion on the EUs strong steer that, in their view, 'lots' should be the default strategy when letting contracts.

I have advocated the use of 'lots' for many years but that has always been as a tool in achieving the strategic objectives of the organisation, for example, ease of access to SMEs.  If 'lots' are not strategically aligned with the organisation's objectives then, to me, they should not be used.

'Lots' are just one of an array of strategic sourcing options which should be considered - they should not, however, be the default option. Nevertheless, the EU now expects public sector procurers to document why 'lots' are not used and therefore implies, they are the option of preference. The implication is that at some stage that documentation will be need to be produced as some sort of discoverable evidence in defence of a professional judgement by the CPO.

Now I am not against a CPO documenting an options appraisal which justified why 'lots' were not used, on the contrary I would like to see more procurement decisions led out in logical argument. However, I feel those documented justifications should be for internal scrutiny and not something which the EU should demand.

I also have concerns of what this could lead to. For example,

Is Procurement reputational risk mis-sold?

For many years I have heard about the risk of poor procurement performance damaging reputation - I'm sure you have too, I'm also sure you would have heard it from me too.

Have you ever thought though how adverse impact would be manifested?

The assumption on impact may well have been a share price decline  - bad media coverage about a procurement issue correlating with a decline in share price. At first glance that sounds logical enough but there's a major problem if the firm or organisation in question does not have shares publicly quoted. For example, public sector organisations, third sector organisations and private companies would not be quoted on the stock exchange!

Okay, so setting that aside, and only considering the share price performance of organisations like, Tesco, Premier Foods, Primark, and H&M - yes all these have had adverse national media coverage linked to procurement - could we see adverse impact on share price linked with the horsemeat scandal, wrong use of the Red Tractor QA logo, supplier late payments and profit mis-statement, supplier coercion (e.g. pay-to-stay), the Rana Plaza disaster, poor SCM conditions?

I looked at the quoted share prices, the day before the news story broke, the day after, two weeks before and two weeks after, and even considered the trends over a longer period of two years.

Now what do you think I found? Well it appears to me, without an major statistical analysis, that where you could see an adverse impact, it was short-lived (a blip) and the firm in question was already in a long-term state of a declining share price anyway - the procurement issue is unlikely to have helped but was probably indicative of wider strategic management weakness anyway.

Then bizarrely, in a few of the situations the share price increased. Yes, major adverse press coverage of a procurement related issue and the share price rose and continued to rise - the firm was on a steady long-term upwards trajectory of its share price and the adverse media coverage of the procurement issue appeared to have no detrimental long-term impact whatsoever - perhaps it was how the firm was perceived to have responded to the issue?

Also interesting was when I considered firms which were perceived to have come out well in media coverage, for example, those food retailers who were praised at the time of the horsemen scandal. I couldn't find a tracker which demonstrated a benefit - they were not publicly quoted on the stock market!

What does this tell us? Well the whole threat of potential repetitional damage used in selling procurement strategy may well be mis-selling. Perhaps procurement issues are not as big an issue as we see them? Perhaps nobody really cares? Perhaps the whole notion of measuring adverse impact through share price is flawed?

What do you think?

First published on 28 April 2015 as a Spendmatters guest post

Are 21 Crown Representatives an indictment or a solution?

The 4 March announcement of an additional six Crown Representatives means the UK government are relying on a cohort of 21 part-timers to address, what the Financial Times refers to as, Whitehall's "insufficient civil servants with the commercial skills to [manage outsourcing contracts]".

Now let's be clear, outsourcing is not remotely new and there has been major outsourcing in the public sector for many years, but the most recent trend probably dates back to CCT of the 80s. So, let's  say the UK public sector has 25 years of outsourcing yet are not perceived to have developed sufficient skills! How can that be?

Right at the core of Gateway Reviews, PRINCE2 and MSP methodologies are questions relating to whether the client has the skills in place to effectively deliver the project/programme. So how on earth did so many of these 'problem' projects navigate the QA' system without demonstration of the required skills? Is this indicative of a deficiency in the systems as well as the people?

Bill Crothers, the Chief Procurement Officer, justifies the Crown Representatives by saying:

Our Crown Representatives are bringing in top business acumen into Whitehall - our procurement reforms saved £3.8 billion last year and we want to go even further.

The problem is that we just can't differentiate between the savings which are directly attributable to Crown Representatives and those which are attributable to the cohort of commercial senior civil servants. Having said that, I'm sure there are some senior civil servants going through the appraisal system at the present time, claiming that much of the savings the CPO cites are solely attributable to them.

Bitcoin for procurement

Bitcoin seem to be getting quite a bit of airtime at the minute but little discussion on how they will fit within commercial procurement.

Visualise the scenario: you have one contractor who has a unique set of expertise you want to procure as they will really deliver your organisation an unassailable competitive advantage. The problem is that the supplier does not like the idea of paying wads of cash over to the taxman and says they will only help you if you pay in Bitcoins - what do you do?

For those of you who have never heard of Bitcoins, they are a virtual cash, a digital currency which really doesn't exist, but can be exchanged into cash. Over the last five years they have been used in the seedy world of drug dealing and on-line pornography. Those who trade in bitcoins are anonymous. They are beyond either the taxman or the law - so there may be some questions of ethics. But Bitcoins are now being used legitimately for some consumer purchases and recognised in some countries as legal tender. They do away with all those expensive credit card charges. There are about 12 million Bitcoins in existence and there is an understanding that there will never be more than 21m.

If you wanted to trade in Bitcoins you'd need to take the risk of wide fluctuations in the exchange rate (foe example from £175 to £50 to £105 within six hours, and separately between £800 to £550 in one day) and even went into freefall on 18 December when the Chinese government placed a restriction on their use - but maybe that doesn't matter if you really need something and you find a means of hedging.

You'd need to think how you were going to enforce a contract, but that may not be hard if you are paying for personal services and after they have been delivered.

So, i ask you again: you have one contractor who has a unique set of expertise you want to procure as they will really deliver your organisation an unassailable competitive advantage. The problem is that the supplier does not like the idea of paying wads of cash over to the taxman and says they will only help you if you pay in Bitcoins - what do you do?


This was initially posted as a guest blog on 8 January on Spendmatters

Do we need an Undercover Supply Manager

I'm sure you've caught at least a glimpse of those TV programmes where the boss goes undercover to find out what it is really like working in their firm. Wouldn't it be interesting if there was a buyer version, where the buyer goes undercover to find out what it is really like working in their suppliers firms?  A good start would be if those who award 'best of bred status' did the same. 

For example, it was only in May that Gartner crowned Apple king of the supply chain. At the time I was puzzled how, given Apple's supply chain problems, particularly with Foxconn, they could be positioned as the exemplar.    

Now we learn that Foxconn's peculiar style of human resource management does not appear to be isolated to China but is also being applied in the Czech Republic. The Sunday Times reported on the research of Andrijasevic and Saccheto. We learn of accommodation in which 80 workers share a dozen showers and two bathrooms, 12 hour shifts punctuated with only a 30 minute lunch break and two 15 minute breaks, excessively low pay and fines imposed for sitting down.

And one of Foxconn’s three Czech factories, in Kutna Hora, no longer makes products for Apple according to the reports. Why? Quite simply because Foxconn reacted to increased demands from their workers   - “when the workers started getting together to demand better working conditions, the division was closed”.

Is it really appropriate for Apple, an exemplar, to put up with these working practices and such behavior in one of their key suppliers?

Our memories seem to trick us very quickly into forgetting too quickly the working conditions which led to the deaths in Bangladesh and how supply chain management can make a difference. Nobody is accusing Foxconn of putting its workers in the obvious danger we saw in that terrible Bangladesh factory collapse, but perhaps we need more 'walking in the shoes' of the factory workers if we really want to understand what it is like to be a supplier to some of our brand leaders. 

Previously published as a guest blog on Spendmatters, 16 July 2013 

Should labour adopt a policy of the living wage for public sector contracts?

Ed Miliband is proposing the adoption of the Living Wage in all public procurement contracts, while the CBI’s Director General, John Cridland, views the mandating of the living wage as a threat to small businesses. In the UK we already have the minimum wage of £6.19 (for London) but if the Living Wage were used instead that would mean all employees in London would receive a minimum of £8.55 per hour.

Would the adoption of the Living Wage be a threat to small businesses? Is it even right to use public procurement as a policy tool in this way? It’s for politicians to decide but we need to be reassured they have thought it through.

Could such a condition in public sector contracts lead to a two-tier workforce with those working on public sector contracts within the same firm, paid a different rate than those working on private or third sector contracts? How easy would it be to cope with those who work on more than more than one sector’s contracts?

Given that the additional cost of the living wage will have to be passed through the contract price to the public sector, will the additional costs not merely be transferred to the public purse? Will the Treasury accept such an additional cost? What will be the implications to wider budgets and will some public services be cut to balance the books?

Then we have to ask will this mean different pricing strategies are required for public and non-public sector contracts?  Surely it would be counter-productive to have non-public sector contracts priced on a minimum wage while public sector contracts are bid on the higher living wage?  If such an approach were adopted it would make a mockery of any comparative benchmarking between private sector prices and those of the public sector.

Where do you draw the line on a public sector contract? For example, what about the supplier who has a low value order for say, Lego blocks, how far down the supply chain would the impact of the living wage be passed? Would a threshold have to be adopted for the application of the living wage in contracts? If that were the case would we see disaggregation of contracts to avoid the higher costs?

But would the wider public sector be ready to pay the additional costs? When you think of it, this would really be a public sector purchase tax borne by the buying organisation. How would it be viewed by local government who have already wrestled to make significant cuts?

If the policy were introduced how much would it cost to handle the administration and even the policing of its application? Just as interesting would be to understand how the policy could be exited?

Then we have to ask the more fundamental questions: are there more effective ways of achieving the same outcome, and should public procurement be used as an alternative to low pay benefits?

I can’t see this idea as a risk to small businesses but I do think there’s a need for a more thorough analysis of the risks and alternatives

NB First published as a guest post on Procurement Insights and  Procurement Insights EU edition

Is there an environment in which procurement fraud is more likely to develop?

If there are reductions in the frequency of exposing purchases to competition through longer-term arrangements, then it is more difficult to demonstrate ‘the price is right’ and suppliers also risk having more at stake from losing business.

If specific individuals have discrete longer-term responsibility for specific purchases in and are perceived to have unique know-how, then visibility of behaviour and critique of strategy is reduced.

If there is a streamlining of processes, which removes what were considered to be ‘non-value added’ checks and balances, then the likelihood of detection is reduced.

If there has been a switch to high-level strategic audit as opposed to random in-depth end-to-end process auditing then the likelihood of fraud being uncovered is reduced.

If there is a feeling of loyalty to the organisation not being reciprocated with loyalty to the individual, then it is more likely that employees will feel a sense of betrayal and anger. 

If there is job uncertainty, doubts about long-term security, a high probability of redundancy, worries about being able to get future employment, pay mortgages and family bills, it is likely that the temptation to engage in procurement fraud will increase.

If there is organisational complacency the procurement fraud only happens in other organisations, then there is a denial of reality.

Is there an environment in which procurement fraud is more likely to develop? Yes, right now.


First published as a guest blog on Procurement Insights, 10 July, 2013

Protecting against when the gamekeeper turns poacher

Oxfam and Lloyds Banks don't immediately register as having much in common, particularly for those of us who have an interest in procurement. The link is fraud, or, more specifically, when the gamekeeper turns poacher.

Last September, Lloyds former head of fraud and security pleaded guilty and was sentenced to five years in prison for theft  of £2.4m. She had submitted 93 false invoices between 2007 and 2011. Yes, this was the person the bank had charged with protecting them from fraud.

In an echo of Lloyd's, on 18th June, Oxfam's former chief of counter fraud was accused of stealing £62k and a laptop. Let's be clear though, he is accused but the court have yet to make a judgement.

It would have been expected both the anti-fraud gurus would have been carefully vetted and 'above suspicion'. They would also, however, have been in the ideal position to identify the weaknesses in the system and the scope for avoiding detection. Yet, in both cases, it is alleged, they 'broke the system' and no doubt there are plenty of examples of more successful adept anti-fraud gurus who have so far escaped detection. The lesson must therefore be that there is a need for some form of independent testing of the anti-fraud system, but that seems rarely evident. Another lesson must be to put in place the system which also 'polices the police'.

I have long lost count of the number of risk managers, who, when I interviewed them about procurement risk, had not given any meaningful consideration to procurement fraud, therefore they lacked appropriate protections. Yet it has been estimated that procurement fraud cost the UK public sector alone somewhere in the region of £2.3bn – closing that down would make a painless but worthwhile contribution to the UK economic recovery.

In the procurement world, who better to know how to break the system, with minimal chance of detection, than those who understand procurement - systems are required to reduce that risk. But just as important a question is, 'are the processes in place to protect the CPO against mischievous allegations of procurement fraud?'

Sadly, I see a lack of robust anti-procurement fraud systems - have you got one in place? Such a system  needs to be proportionate, pragmatic, risk based, comprehensive, tested and regularly reviewed. Without such a system how will you be able to prove 'not guilty'?

First published as a guest blog on Spendmatters, 26 June 2013