In space, no one can hear (the procurement professional) scream…

This is the fourth article in a fortnightly series from Gordon Donovan.

Captains’ blog (well there is a space theme to this one….)

Procurement in space

You may have read recently about NASA issuing an RFP to resupply the international space station.  

It reminded me of a couple of quotes from John Glenn:

“I guess the question I’m asked the most often is: “When you were sitting in that capsule listening to the count-down, how did you feel?” Well, the answer to that one is easy. I felt exactly how you would feel if you were getting ready to launch and knew you were sitting on top of two million parts — all built by the lowest bidder on a government contract.” 

“As I hurtled through space, one thought kept crossing my mind – every part of this rocket was supplied by the lowest bidder.”

In a previous article I talked about the supplier selection process and the use of cultural fit rather than the traditional supplier selection methods, for some projects. I wonder how they would cover the cultural issue with this one. Would Romulans and Klingons be prohibited for instance? Would the Jedi be able to use the force to deliver the goods?

This leads us nicely to an article about the draft report into tenders for the Australian government. 

In summary the article and report states that “Tender documents have traditionally been written prescriptively and with an overarching focus on value for money. While risk management and value for money are both important considerations, too narrow a focus on these factors can constrain choice, innovation and responsiveness in the government-commissioned provision of goods and services.”

Will this lead to a change in evaluation criteria in general for use of tenders, will this lead to more thought about the way of interacting with the supply market in general? I wonder what innovations NASA could tap into?

On the subject of evaluation criteria a recent blog article by Kelly Barner highlighted that sometimes trying to do the right think in evaluation (in this case diversity actually backfired. She stated that:

“In 2013 the Massachusetts State Lottery Commission awarded a contract for $5 million in advertising services. Like many public sector agencies, the lottery commission has diversity targets and required that a portion of the work be sub-contracted out to a minority- or woman-owned supplier.

The lottery commission evaluated all bids on cost and presentation as well as the diversity requirement. The contract was awarded to a firm that did not earn the highest score for cost or presentation but did commit to sub-contract 0.24 percent of the contract’s value, to a woman-owned supplier. The firm that earned the highest scores for both cost and presentation was, itself, a certified woman-owned business and therefore did not commit to sub-contracting work to another business.

Had that company been awarded the contract, 100 percent of the $5 million would have been awarded to a diversity supplier that also scored highest in the price and presentation criteria, and the state would have gotten a better result for less money.”

There has been a rash of benchmarking reports released recently:

Procurecon Europe

  • 20.7% of you believe  you have a poor level of supplier contract compliance
  • 74.1% of you approach recruitment for your organisation’s procurement teams in a combination of functional and non functional way
  • Relationship management is the biggest skills gap in your procurement teams today
  • 58.6% of you are investing in consultants as a third party solution/service for your business

Hackett Group

  • Management priorities in 2014 center on innovation-led growth
  • In 2014, procurement’s top priority is to expand its spend influence
  • Rebalancing supply risk
  • Recalibrating procurement’s technology and tools
  • Reinventing procurement’s value proposition

KPMG

  • Supply chain was the number one area where respondents said they will increase investment the most over the next 12 months.
  • Supply chain also topped the list when companies were asked which issues would be most challenging over the next 12 months
  • Human resources development will be ‘very’ or ‘critically important’ to their company’s strategy over the next 12 months.

Mckinsey

  • More and more companies are addressing sustainability to align with their business goals
  • Company leaders and all others increasingly see sustainability as a top CEO priority.
  • Companies’ current approaches to reputation management vary by industry
  • The reputation-management activities viewed as most important are not necessarily the most pursued
  • Sustainability ‘leaders’ set themselves apart through target setting and a clear strategy
  • Organizations excel at creating a culture and direction for their sustainability programs, but they struggle with elements of execution.

The last point on the Mckinsey report talks about creating a culture which brings us full circle back to where we started, and to round-off this piece I came across this article from Procurement Leaders. 

In it Steve talks about creating a cost conscious culture, which reminded me of something my organisation discussed earlier this year at our CPO forum. How to create that culture, Chris Lynch the CFO at Rio Tinto gives his 14 points here.

Strangely couldn’t find any mention of interplanetary co-operation on either of them…

For readers in Australia, I will be attending the CIPS Australasia conference in Sydney on 15-16 October and if you wanted to catch up please get in touch via the usual channels and I’ll be delighted to grab a coffee. Alternatively you can follow me on Twitter as I’ll be live-tweeting the highlights during the conference.

As ever you can subscribe directly to the sources I have identified here (nothing is my copyright), and if you wanted to discuss please feel free to contact me via Procurious, or follow me on Twitter.

Procurement: The new and improved model?!


Procurement Professionals on LinkedIn

The following article originally appeared on the Procurement Professionals LinkedIn Group.  Join and view other articles here.

In 2011 the Coalition Government launched their ‘new’ Government Construction Strategy with its aim to improve the industry whilst reducing whole life cost and carbon by 20 per cent by 2015.

Procurement: the new and improved model

A major part of the strategy focused on reforming public sector procurement, and in particular trialling a series of new procurement methods to drive these improvements and efficiencies by effecting behavioural and cultural change. The models intended to draw on established best practice and drive an ‘evolutionary, not revolutionary change’ across the public sector. They utilise a range of common principles which emphasise the need for collaborative working and early contractor involvement, where the supply chain responds to an outline client requirement and declared budget rather than a pre-determined design.

The three models are:

  • Cost Led Procurement – During the Cost Led Procurement process, a client sets out their output specification against a challenging cost ceiling based on their own knowledge and experience of costs . They then invite the supply chain to bring their own collaborative understanding to develop an innovative response to the brief. CLP is of particular use in a competitive framework environment where there is opportunity to continually improve on the unit costs of the programme working collaboratively with the supply chain.
  • Integrated Project Insurance – This is the most innovative and new approach. The Integrated Project Insurance (IPI) model offers clients the opportunity to create a holistic and integrated project team (an ‘Alliance Board’) to eliminate the “blame/claim” culture. The innovative “integrated project insurance” package limits the risk for the individual members of the team, fosters joint ownership of the project, and thereby reduces the likelihood of overrunning in terms of cost and time.
  • Two Stage Open Book – This model improves on an established approach often used in a framework environment. At the first stage a client invites prospective integrated teams to bid for a project based on their ability to deliver an outline brief and cost benchmark. The appointed team works alongside the client to build up a proposal after which the construction contract is awarded – this is the second stage.

In 2012 a trial programme for the new models was established which included projects from the Ministry of Justice and the Environment Agency, and more recently the procurement of the Education Funding Authority regional framework. However the trials have so far only focussed on CLP and Two Stage Open Book, as due to the innovative nature of IPI it has taken more effort to initiate a trial project.

Also in line with the development of the new models and in order to bring about further reform, the GCS reinforced the need to improve the public sector procurers skills. It has backed the creation of a Major Projects Leadership Academy run in partnership with the Saïd Oxford Business School and Deloitte, and ‘encouraged’ the dissemination of best practice across central and local government. Finally the GCS also provided an updated version of the Common Minimum Standards for procurement. Although the impact of these initiatives is more difficult to measure.

Despite all of this I still hear from contractors on a regular basis that clients are more concerned with lowest price tendering. Or are too reliant on their advisors producing a design before they procure a contractor and then expecting innovation and value engineering to further reduce their spend. So for me the big question now is – three years on, and (perhaps more importantly) less than twelve months to the next general election, have all of these reforms made any difference in the industry?

Based on the evidence provided in the trial projects the potential benefits of the new procurement models are demonstrable for all parties. However the trials have been restricted to a small number of high value central government projects. And whilst anecdotal evidence suggests that things are improving generally in construction, this is more than likely related to an upturn in the economy as a whole.

 

Could Uber’s business model tackle procurement’s next challenges?

In a week that saw the CIPS Conference juggernaut roll into town, and Tesco (still) reeling from overstated first-half profits [more on that here] – you might have missed the following nuggets of news:

The Uber business model could transform supply chain

Copy Uber’s model to tackle procurement’s next big challenges

  • According to CIPS economist John Glen, speaking at the CIPS Annual Conference in London last week, Uber is not actually in the business of taxis.
  • “Uber is in the business of looking out into the world where there is excess capacity and resources that are not being fully utilised and matching the resource with customers who want to use it,” Glen told delegates.
  • “How do you look at capacity that exists within your own business that is not being currently fully utilised, that you could rent out to someone else or use in imaginative ways?”
  • He continued: “We now have to start to be very clever about how we form alliances with our supply chain, how we understand what it is our customer wants, how we use technologies that are out there cleverly with assets and customers in different geographies, and that is going to be our world in the next 12 months and beyond.”

Read more at Supply Management

Rating agencies’ demands pose threat to commodity supply chain

  • Commodity-price spikes could become more common if credit rating agencies drive up the cost of capital for leading trading houses, forcing them to hold less inventory, a leading consultancy has warned.
  • In a new report on the commodity trading industry, co-authored by Graham Sharp, one of the founders of Trafigura, the consultancy says that by including debts associated with trading in its calculation, the agencies could drive up the cost of traders’ capital. As a result, these companies would have “significantly less incentive” to hold high volumes of inventory and resolve potential supply disruptions.

  • The big commodity traders are drawing greater attention from investors as they issue more bonds and financial instruments to help finance the acquisition of assets that range from coal mines to storage terminals and petrol retailers.

Read more at the FT.com

California launches high-speed train procurement

  • The Californian high speed rail programme envisages provision of a ‘one seat ride’ between Los Angeles and San Francisco by 2028 within a budget of $68bn.
  • Expressions of interest are to be submitted to the California High Speed Rail Authority by October 22 from potential suppliers of high speed trainsets for the planned 836 km network that would link the San Francisco Bay Area with the Los Angeles basin by 2028.
  • ‘We are going to have the first true high-speed rail system in America and industry leaders from around the world are eager to talk to us about why their trains should be running on our tracks’, commented CHSRA Chief Executive Jeff Morales. ‘This is a big moment for our programme.’

Read more at the Railway Gazette

H&M’s environmental sustainability coordinator on sustainable materials

  • The Guardian spoke to Erik Karlsson, H&M’s environmental sustainability coordinator, about the environmental credentials of the new line and the H&M partnership with Jeanologia.
  • He revealed: H&M has been working with more sustainable materials for many years now. Currently, we are the largest user of organic cotton. Our ambition now is to be able to close the loop on textiles, ie produce new fibres from old clothes. In this collection we have two products with recycled cotton from our garment collecting program.
  • To create Conscious denim, washes have been scored red, yellow or green (where green indicates the toughest criteria) for water consumption and energy consumption. To meet Conscious denim standards at H&M, garments must be made with organic, recycled or climate smart cellulose materials and the washing process should score ‘green’.

Read more at The Guardian

Hermes on equality in the supply chain

  • Retail Week has published an article that highlights the success Hermes has had in bringing about equality across the business.
  • The writer – Carole Woodhead, is CEO of Hermes.
  • Women hold a third of the main board positions at Hermes UK. In addition, 25 per cent of all senior management positions are females, as are more than 60 per cent of our field team leaders. In terms of the supply chain sector, women are extremely well represented at Hermes and the company is above the industry norm.
  • We have also recently welcomed Clare Bottle to Hermes who has taken up the position of head of courier service. Clare brings more than 20 years of industry experience to the team, previously working as national logistics manager at Lafarge Tarmac. Clare is also vice-chair of Women in Logistics UK and a trustee of Transaid.

Read more at Retail Week

Coca-Cola green branding devalues the colour’s ethical heritage

  • The cola wars are back on again with the launches of Coke Life and Pepsi True but their use of green branding leaves a sour taste in the mouth, says Chris Arnold, creative director, Creative Orchestra and author of Ethical Marketing & The New Consumer.
  • It’s packaged in a green container which implies it’s some kind of natural, ethical, environmentally-friendly product. What’s more, Coke has spent over 100 years associating the brand with the colour red, so this seems a betrayal of the brand to suddenly go green.
  • With two brands, that aren’t exactly seen as ethical brands, their use of green just devalues the use of the colour green and it’s association with natural and environmental products. Coke claims the green is inspired by the green leaf of the Stevia plant. Seriously?

Read more at Marketing Magazine

Tesco scandal shines a light on the retailer-supplier relationship

All is not well at Tesco HQ… Amid tales of the supermarket’s accounting scandal, a colossal 4 billion pounds has been wiped from its stock market value. The trouble stemmed from an overstatement of its first-half profit – a full 250 million. Not a small drop in the ocean by anyone’s standards.

Tesco profits scandal

“The Financial Conduct Authority has notified Tesco that it has commenced a full investigation following the overstatement of expected profit for the half year which was described in our announcement of 22 September 2014 and which is currently the subject of an independent review by Deloitte. Tesco will continue to cooperate fully with the FCA and other relevant authorities considering this matter.”

It’s not simply a tale of accountants getting their sums wrong… the wounds of deceit bleed deep, and it’s the suppliers on the other end that will hurt the most.

According to this story on The Grocer, a supplier with close ties to Tesco has revealed that buyers are “desperate” and are artificially bringing forward huge payments in order to fill the “huge gaps” left.

Tesco scandal has suppliers divided

Luckily the suppliers have the ears of the government-appointed watchdog – namely Christine Tacon, an Adjudicator of the Groceries Code. The Adjudicator’s motivations focus on whether the supermarket has breached code that adversely affects suppliers. Such breaches can include payment delays or changes to supply agreements.

David Sables, CEO at Sentinel Management Consultants told The Grocer that he believed this was merely “an extension of what was always going on.”

Graham Ruddick, Retail Correspondent for The Telegraph, writes: “There is currently no code, regulator or set of rules controlling the relationship between suppliers and retailers in the UK. In addition, there is nowhere to turn for a supplier if it feels it is being bullied by a retailer. Many suppliers are too scared to speak out against a larger retailer for fear of being delisted or replaced by a rival, so they suffer in silence and agree to the unreasonable demands being placed on them.”

He further states that the Tesco scandal could spark a long overdue shake-up of the retailer-suppler relationship – noting that: “Last year this lack of regulation resulted in the horse meat crisis.”

If one good thing is to come out of this sorry debacle, maybe it should be this?

Cheese-in-a-can inventor turns to procurement

According to legend, when captors of Saddam Hussein searched his bunker, they discovered a high calcium cheese-in-a-can developed by Australian man Peter Force.

Peter Force

While not entirely a procurement project, it’s a story Peter recounts with pride and a wry smile because it shows how far and wide his rather unusual invention was sold around the world.

The product came about while Peter was working in research and development for Kraft, before he got his break in procurement at Parmalat.

Peter actively sought a procurement role with the FMCG behemoth after realising that career progression opportunities were severely lacking in the research and development field.

His Parmalat boss told him he needed to study business to get a break in procurement, which he did. He already had a Bachelor of Food Science and Technology, where he gained honours for inventing a fat-free cheese.

Then there’s the Advanced Diploma in Business Management and a Diploma in Project Management, a Graduate Diploma in Purchasing and Supply and a Graduate Certificate of Writing, Editing and Publishing. Whew.

“I told the procurement manager at Parmalat I wanted to work for him. He took me seriously after he happened to catch me in a heated debate with someone in marketing, saying he could see I had the backbone for the job. When a job became available, I applied for it and was successful, so switched to the dark side.”

He recalls a trip to China for Parmalat to audit the quality of strawberries destined for the company’s Vaalia-branded yoghurt. “I told my mates I went to China to pick fruit, which was kind of true.”

The keen angler has also worked in rail, government, mining and energy industries. He now works for AGL in the merchant energy division, which is one of Australia’s leading renewable energy companies.

Procurement is a fine balance between getting what you want, and being nice, he explains.

“I like people, and sometimes they like me back. Either way, my aim is to get a better deal with a supplier, but I also know we’ll need to continue working together, so I don’t want to upset the relationship.

“Other times, I need to tell suppliers when their bid has been unsuccessful, but I always want to bid next time I go to market so I’m nice about it.”

Our takeaways from the CIPS 2014 Conference

Procurious headed to Kings Place to take in the sights, and hear from a wealth of insightful speakers at the biggest procurement event of the year – the 2014 CIPS Conference and Exhibition.

Having survived the global economic crisis, this year’s theme (unsurprisingly) focused on ‘standards, ethics and innovation’ within what CIPS calls ‘a new procurement future’. 

With Craig Lardner chairing proceedings, delegates were treated to a packed day full of talks, break-out sessions, and a distinguished guest from the world of broadcasting.

CIPS Conference 2014
Facebook.com, CIPS

Some of our highlights from the day included:

Dr John Glen’s opening session was an early highlight of the day. John is an economist for CIPS, and lectures at the Cranfield School of Management. If you’ve ever struggled to grasp economics, the good Dr offered a brilliantly accessible half hour. He also suggested that the next big challenge for supply chains would be to adopt the business model that’s made Uber into such a success story.

IKEA’s Environmental and Sustainable Development Manager – Charlie Browne, revealed how the business has reduced supplier count in a bid to maximize effectiveness. Sustainability is also in IKEA’s blood – with the retailer’s efforts dating back to 1990s.

Tesco’s Frances Goodwin offered her thoughts on the role of ethical trading in procurement. She left us with a surprising nugget around procuring a banana – in that the supply chain is (on average) 5 layers deep.

Rita Clifton – President of the Market Research Society and former Chair of Interbrand presented a light-hearted session on the power of branding. Rita distilled the ingredients that make a strong brand, and revealed some of the brands that she thinks have got it right. She also confirmed something we’ve been saying for a while: Procurement has an image problem. Do a Google Image search for procurement and see what we mean…

In what was possibly the biggest announcement of the day – Babs Omotowa, Managing Director and Chief Executive Officer of Nigeria LNG Limited was announced as the incoming CIPS President. Babs will take the mantle from Craig Lardner four weeks from now.

Our favourite break-out session was delivered courtesy of Clive Lewis – Founder and Managing Director of Illumine Training. Clive guided us through 5 different methods to help boost creativity, and approach problems differently.

Elsewhere, Bord Bia (the Irish Food Board) and Selex ES talked about building strong supplier relationships. The latter having previously been crowned the overall winner at CIPS Supply Management Awards 2014 for their work with Research Electro-Optics (REO).

To cap a busy day off, influential food writer (and occasional TV personality)  – Jay Rayner, provided a thought-provoking (and at times, hilarious) commentary on food supply chains. With insights like: full service supermarkets cannot compete with discounters – and in the end it’s the suppliers that suffer. We suspect he may have also snuck a few plugs for his book in there too…

Twitter also provided some key takeaways – here is what some of the other attendees were saying:

CIPS Conference 2014

CIPS Conference 2014

CIPS Conference 2014

CIPS Conference 2014

CIPS Conference 2014

How Better Together is putting the excitement back into UK public procurement

The Scottish Independence Referendum was a thrilling time, one I’m glad to have been part of, but now it’s over, what is the real impact of Better Together for UK Public Procurement?

Better Together for UK Public Procurement

I believe that we are facing exciting times ahead and that we now have an amazing opportunity to create something special, something lasting and something that will have a real impact on the communities we serve.

Let’s push things to the next level

It’s time for our collaborative buying organisations to push things up a gear.  At a UK level the public sector spends over £45bn on goods, services and works.  Crown Commercial Services chairman Bill Crowthers is quite right when he says that “we need to make the most of this extraordinary buying power.”

How CCS, Scotland Excel and other collaborative buying organisations engage with their customers, the public bodies the length and breadth of the UK, will be crucial as we move into the next generation of public contracts.

We need agreements which serve not only London but Lerwick, not just Belfast but Bangor.  Our collaborative partners must deliver agreements and contracts that will reduce the overall cost to the whole public purse.

Savings not just for the strong and influential public bodies with huge amounts of spend but for the smaller less centrally located bodies too.  All for one and one for all!

It’s time for innovation, imagination and change

Let’s use this next period to encourage innovation amongst our suppliers, particularly those who are UK based small and medium enterprises.

Let’s use imaginative contract strategies, structured contract management and true and deep supplier engagement.

Let’s make access to public contract opportunities easy.

If we really are better together then let’s have a single gateway where all public contracts for the UK are advertised.

Think how refreshingly simple it would be if you’re a British supplier, particularly a small one looking to grow, if you knew about every single contract opportunity for your commodity in the UK as soon as it was advertised.  So let’s build on the success of portals like Public Contracts Scotland to create something bigger and better that covers the whole of the UK.

Let’s take the impetus given to us by the new EU directives and drive this SME agenda forward!

Community benefit clauses that benefit all

We need to seize the opportunities to make public procurement a force for good in the wider community and economy.  We can use community benefit clauses to not only deliver apprenticeships and work placements, but also to promote improved engagement with and services for communities.

How about donating the power of a community benefit clause in your construction project to another area if you can’t sustain any more apprenticeships at the moment where you are?  Why not put it in your contract but target it for a related geographic area where there is a demonstrable need?

Now that would be Team UK working better together wouldn’t it?

There is powerful information in the data – we just need to use it!

We have access to big data on spending across our organisations, across our sectors, across our countries, across the UK.

It’s time to inspire our IT suppliers to give us integrated solutions which join up purchasing systems to general ledgers to contract registers to national procurement information hubs.  It’s no longer acceptable for us all to say we don’t have the data; that we just don’t know.

Just imagine what we could do with all that knowledge about our spend and contracts if we can actually get our hands on it?

The future for public procurement is exciting

So as we head towards a place where decision-making could become more local, the potential for public procurement to excel has never been greater.

We can deliver even more savings and value by joining up behind the scenes and working together whenever we can.  This won’t be by implementing a one size, or organisation, fits all approach.  It will only be by adopting a federalist approach that recognises procurement teams operating at local, sectoral and national levels all have their roles to play in this exciting next stage.

Only then we truly be better together.