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.

Is the Tesco storm indicative of a governance & policy failure?

Today's news that allegedly three more Tesco staff, who have links with procurement, have been suspended continues to rub salt in the wound and negatively impact on reputation.

While I have discussed Tesco's procurement many times, I now find myself asking: "is the weakness in the governance and policy as opposed to the people?"

If the press are correct, those suspended now include: the commercial director, the food commercial director, three category directors (group wine director, director of convenience foods, and director of impulse purchases) and someone responsible for sourcing.

It seems impossible to believe all those suspended are mavericks or indeed that they were pursuing a strategy concealed from those with strategic oversight. If that is possible, then how many other areas of Tesco's governance lacked scrutiny?

Nevertheless, it may be a good time to gain insights into the procurement governance and policy of Tesco. If that was a fault, you can hardly blame the staff. Even if Tesco replace the staff, in the absence of addressing governance and policy failures, the corrections will only be cosmetic.

It may also be a good time for those charged with procurement governance and policy to ask, "could Tesco's woes be replicated here?".

More Teswoe's - and thoughts on the linkage of Marketing & Procurement Strategy

With the slogan 'Every little helps' Tesco are also sure to understand the drip, drip, drip of every little piece of negative publicity also counting. I have given considerable attention to Tesco's approach to procurement over the years and how it may not have been just exemplary as others argued.

However, today's Sunday Times article drew my attention to an aspect of Tesco procurement strategy that I previously hadn't considered, namely, minimising customer choice. I just hadn't considered that the strong arm of Tesco's buyers were suspending products from the shelves - customers were being deprived of choice by Tesco. Of course the suspension also had a painful impact on suppliers. Ironically Premier Foods lost £10m in three months. I say ironically as you may recall, some months ago, I referred to Premier Foods bizare approach to defining strategic suppliers.

While these case studies are of interest to the procurement world, to me they are also of interest to those interested in Marketing Strategy. Did Marketing in Premier Foods position Tesco as strategic - clearly Tesco's Procurement Strategy didn't position Premier Foods as strategic. And what about the reputational damage caused by Tesco's Procurement Strategy - never mind that a number of the Tesco staff are now suspended, how much will Brand reconstruction cost. Wouldn't it be interesting to read the brief for the procurement of that Brand agency who have to undo the damage caused by Procurement!

Phones4U rings out a need to understand power/dependency

The news that Phone4U has been forced into liquidation as a result of its strategic suppliers opting to no longer supply means that nearly 6,000 workers will understandably view any talk of a recovery with significiant scepticism. The market and government tend to forget that failed businesses bring personal traumas and scared memories. Phoens4U struck me as great on customer service and providing a useful offer - I have had many phones through them over the years and was always impressed by the staff who dealt with me - my heart goes out to them.

But the decisions of Vodafone, O2 and EE to no longer contract with Phones4U demonstrate the importance of understanding and recognising the power/dependency relationship in procurement. Clearly those big providers have developed an alternative business model of cutting out the middle man questioned their added value. But how did Phone4U addresses these former partnerships over the years? Did they view the partnerships as not only a significant procurement risk or even they recognise the potential for the supply chain to close the firm?

We can only hope that negotiating strategy of Phones4U was not a major contribuor to its demise but when O2 withdrew as a supplier back in February warning bells must have sounded. But warning bells must also sound for all those businesses which are dependent on those providers for delivery of their services - do you consider your business as preferred customer of, for example, Vodafone, or are you merely dependent on them?

Do you really try to become a preferred customer?

18 months ago I co-authored a Whitepaper warning that adopting a short-term approach to procurement strategy could prove detrimental when recovery from the Great Recession arrives. As we approach elections in the UK we are told recovery has been reached, whether or not you feel and see that is debatable.

Today's Financial Times reports on research for the European Payment Index (EPI) that suggests, across the EU, €360bn has been written off as a result or late payment of bills and invoices. The research considered responses from the 31 European companies plus Turkey and Russia. It appears that suppliers are waiting 47 days beyond the contracted term for payment. Now just think what the impact would be on you if your employer told you that you would have to wait a month and a half for your salary.

Of course the 47 days is a sweeping generalisation, but how do you think your firm's payment record would compare if benchmarked against Sweden's delay in payment in the public sector of seven days and with days in the private sector? The Swedes have adopted a system of fining debtors with automatic penalties to protect suppliers.

In the grand scheme of procurement swings and roundabouts there is a time when suppliers have to make decisions between competing buyers as to which should receive preferential service, or indeed delivery at all. When there are plenty of alternative suppliers the buyer can perhaps be a bit complacent and arrogant, assuming suppliers will want to supply. But if you have a history of late payment, don't expect suppliers to be beating a path to supply you, others, perhaps those based in Sweden, can expect to be more attractive for the delivery of quality, price and lead-time. But things could be even worse: what if that critical source for your manufacturing line goes into liquidation due to cash-flow problems?

The report should be a warning that it may well be time to get your payment process improved before your suppliers opt to delay in supplying you.

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:

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!