Grease was the word, now it's 'procurement'

Once upon a time, if you said you worked in procurement, no one really had a clue what that meant.  All that has changed: the Prime Minister, at the height of the political conference season, finds himself compelled to discuss procurement. Even the Undercover Economist has started to discuss bid evaluation.  I am not going to add to the rail franchise debacle debate, save my previous blog.  My concern with the franchise is not that mistakes were made but that reassurances were wrongly given to ministers that the procurement process was 'robust'  when it was not - that is inexcusable and, to me, does more damage to the profession than the making of the actual mistakes.  Of course this isn't an isolated mess, it comes hot on the heels of the Olympic security fiasco.

However, rather than let public sector procurement take all the flack, private sector procurement has thankfully shared the load and also managed to grab the headlines.  Once again Apple's iPhone 5 sole supplier is in the news.  I recently discussed the issue of supply chain risk and the dependency which Apple had on one supplier for the new iPhone.  In that blog I referred to riots which had taken place at the Foxconn factory and how that may have adversely impacted on share price and customer experience.  Today we learn that there are more problems at the factory - this time specification quality standards are at issue: fights between workers and quality controllers, contributed to a strike yesterday.  While Apple is a household name, synonymous with quality, their supply chain dependency is becoming a regular news item.  The behind the procurement story is one of the relative power the key supplier's workforce over the delivery of iPhones, and the negative impact on share price and customer experience. Supply chain risk management must now be a boardroom topic.

It is often said that there is 'no such thing as bad publicity'.  In spite of the negative headlines of the last few weeks, I believe some good may come out of this.  For too long there has been insufficient boardroom discussion on procurement strategy, insufficient robust challenge of award recommendations, and a lack of concern with supply chain risk management - expect that to change.  There has also been a tendency for procurement staff to be appointed in the absence of real scrutiny - expect that to change too.

For good or bad, the next time someone asks what you do for a living, and you reply, "procurement", expect an informed discussion as opposed to a blank stare.

Third sector health warning for addicts

There’s a touch of irony in today’s reports that Cabinet Office enforcers will punish mandarins who opt not to implement government policy, while on the same day we learn that third sector organisations, providing specialist support to NHS patients addicted to prescription drugs, believe they are the victim of a badly designed procurement process that could force them to close.  What happened to Third Sector Commissioning and the Big Society?  This is one example of policy failing to be implemented in  the procurement practice.

To cut a long story short, it appears a new tender approach is underway that requires a comprehensive service in which only bidders which provide support to alcoholics and those addicted to illegal drugs, AND those addicted to legal drugs are eligible to compete.

While I am an advocate of category management, category management needs to be pragmatic.  It has to include understanding the market and how the market works.  It also has to ensure that any bidding which takes place does not stand in the way of making the market work.

However, the approach strategic commissioning is even more baffling. Government and NHS approach to commissioning is to include dialogue with both users and the market as early as possible in order to shape the service.  Third sector criticism of this tender would suggest that dialogue did not take place – can we also assume that specifying outcomes may also have been set aside?

Bizarrely the change in tender approach is being blamed on NHS cuts, yet,

Come fly with me or should I say our agency staff

There is absolutely no doubt that the increasing use of temporary staff as helped raise the profile of procurement.  I actually quite enjoyed letting contracts for agency staff - they provided real influence over big expenditure decisions which had previously been 'closed' and they also delivered significant cost reductions.  One of the things which puzzled me was the exponential demand for the contract which doubled in size every year.

One of my abiding memories of working with Belfast City Council was Bill Clinton's Presidential visit.  It wasn't the razzmatazz or even the special agents approach to sweeping the building, but bizarrely, that Clinton met a disproportionate number of Agency staff about whom very little was known.  I sometimes ask myself: 'did we escape a terrorist attack by the skin of our teeth?' Are there some roles which shouldn't be considered suitable for temporary staff?

It is against that background I was amazed to learn of what now seems to be an over-dependency of Ryanair on Agency staff.  Not temporary baggage handlers, not temporary cabin crew, not even temporary check-in staff - no agency staff as aircraft pilots!

Procurement risk management when the pips squeak

Achieve sales of 5m of launching iPhone 5. Share price reduced by 1/50^th. 5,000 police officers  called in for 10 hours, to supplement the existing 1,500 security guards, in order to quash a riot of 2,000 workers at your sole assembler's manufacturing plant. That’s quite a weekend. To make matters worse the riot was caused as a result of a dispute between one of the security guards and a worker – was it a contract security firm?  Sounds like an unbelievable case study exam question but that was last weekend!


Of  course the warning bells must have been ringing earlier when the supplier installed nets around its factory in an attempt to reduce employee suicides.
The volume of those ringing bells must have been deafening when it was learnt that the supplier’s new employees were being asked to sign a statement that they would not commit suicide. 


Foxconn, with a workforce of 78,000, is the world’s largest contract supplier of electronic goods – yes, they are the iPhone5 sole assembler, therefore Apple are strategically dependent on it for the manufacture of iPhones. The estimated cost of the components in the iPhone5 are estimated to cost $199 (for the 16GB model) while it sells for $650. Microsoft and Dell are also big customers. What happens in Taiwan does not stay in Taiwan.

This latest saga is not unique by far.  Fresh in the minds of readers will be the G4S Olympics debacle and hopefully my blog on not casting the first stone.  

Will Apple be scarred by this experience and punished by the market?  I doubt it.  However, what is clear is that supply risk management is not a well practiced theory.  Unfortunately, we can also expect supplier risk to increase in the current financial climate. 

Tagging value for money and effectiveness

I am absolutely astounded that it has taken 13 years and almost £1bn before someone asked the question, 'does electronic tagging of offenders deliver the desired outcome?'.

Now a Think Tank, Policy Exchange, appears to have actually given the question some thought.  Their conclusion, in a nutshell, is that tagging isn't cost effective, and apart from those tagged, the only other winners are the two contractors providing the service.  In addition it has now been highlighted that a new £3bn procurement process in underway for the next deliveries.

To me there are some interesting questions for procurement which are worth reflecting on:

Could supplier blacklisting backfire?

We have been aware of the UK central government plan to blacklist poor performing suppliers for some time. Today a new twist was introduced when the CBI, who frequently support procurement reform, entered the discussion and made clear they do not support the initiative.  The CBIs director general said:

"It's an unhelpful development, from our point of view. In 2010 the government came to suppliers and said, 'we want you to take a haircut and we want you to share your ideas'. We've taken a cut in margins and offered our intellectual property up to government to find better ways to operate more efficiently and this is what we got."

It is surprising given the traditional closeness of CBI to the government that they were not consulted upon and contributed to the development of this policy.

But what is more surprising is that the government CPO, Bill Crothers, believes this is the first time a company's record has been taken into account in the public tendering process.  Quite frankly I am both mystified and concerned

Unveiling a Vision of UK Industrial Strategy

Last night I was fascinated by the wonderful spectacle of a conservative minister and a labour shadow minister slugging it out on Newsnight over which of the two had the most effective approach to using procurement and supply chain management as part of UK industrial strategy.  Who could ever have imagined such a scene. Of course this could be viewed as good news for the profession but will it really cascade further so that others can see procurement as strategic?

Anyway, last night was really just the prelude to the Business Secretary's announcement today of his vision of an Industrial Strategy.

A number of the initiatives proposed have been advocated over the last year in this blog, so it would be difficult for me to disagree with them. However, what I to put the spotlight on is the proposed '[Reform of] government procurement to maker sure that businesses have confidence to take long term investment decisions'.  Regular readers will recall that we addressed a similar topic last November, at that time it was revolutionising public procurement'.  So just in case you missed the headline, here's what Vince is alleged to have said: