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Outsourcing versus Insourcing – Where to Play When the Music Stops

In the fourth article in a series charting the key issues in public sector procurement, we examine the difficulties for organisations in deciding whether or not to outsource key strategic services and what this may mean for procurement.

I’ve been told in the past that procurement is a cyclical beast – the chances are high that a decision made today will be revisited in 5-7 years’ time and reversed, only for it to cycle round again at the next strategic business assessment.

One common example is centralised versus decentralised services and the level of autonomy business units are given. I’ve had the opportunity to witness this cyclical decision making first hand and have to say that, as much as it sounds fantastical, there’s a ring of truth to it.

I wasn’t long into my role with the organisation in question when the procurement department was pulled into a meeting with the Procurement Director. The purpose, ostensibly, of the meeting was to discuss the strategic direction of the department. However, the experienced members of the team knew exactly what was coming and they were proved to be correct.

The decision had already been made to centralise the procurement activities to one site (ours), with the Director justifying the move with talk of cost efficiencies, economies of scale and better governance over processes. This all sounded very sensible to me, a relatively green procurement professional. After all, the organisation as a whole had cost savings targets and to me it didn’t make sense to have everyone doing their own thing when it came to procurement.

It wasn’t until I sat down with my more experienced (and some might say cynical) colleagues that I fully understood what was going on. This was a strategic decision made by a new Director looking to put their stamp on the department. Not only this, but the department had only gone through an exercise of decentralisation 6 years before, with the move justified by talk of greater efficiency, more autonomy and procurement better able to service the individual site needs.

It became clear during my conversations with other department members that not only did they think this wouldn’t change the way the business worked (wasting time and money in the process), but that it would be reversed by the next Director in a few years’ time. I’d be lying if I said this whole thing didn’t confuse me, but I was to realise that this was more common that you might think as my time in procurement went on.

The Strategic Hokey Cokey

The example above is meant as an illustration of how strategic decisions can be made and justified no matter which side you fall on. It is neither complaint nor criticism, but an observation from someone who, at the time, had next to no experience in procurement. As time went on, I ended up procuring external services as part of a role, as well as managing an in-house manufacturing process for a procurement department.

The decision of whether to outsource strategic services, or keep the work and skills in house, is one that faces many organisations. Taken as part of the decision making cycle, it can begin to feel a bit like the hokey cokey. Insource this, outsource that, in-out, in-out, shake it all about and, frequently, hope for the best when someone comes asking about business costs and value.

But what is the best value approach when it comes to sourcing key strategic services? In the public sector, an argument could be made for outsourcing for budgetary or expertise reasons. However, the counter-argument relates to potential job losses and the erosion of workers’ skills, losing the option to bring them back in-house in the future.

The strategic services most commonly associated with outsourcing would include HR, Marketing, Finance and even Procurement. But in the public sector would there be an appetite for outsourcing procurement? And what could it mean for this and other services in the long run?

On the Way Out?

Fundamentally, it boils down to the question of whether or not the public sector could or should outsource their procurement function, and what the benefits would be were they to choose to do so.

We’ll come back to the first part of that question shortly. Ascertaining the benefits of outsourcing procurement is tricky, as any benefits tend to be subjective and wouldn’t necessarily apply to all organisations. There has been plenty written, too, on both sides of the debate, including a very interesting discussion on Procurious.

From a wealth of articles on the subject, the most commonly mentioned benefits to outsourcing a procurement function include cost reduction (relating to head count, training and access to resources); accessing expertise in a particular area in the market; a way of complementing existing resources; and the access to extensive networks of knowledge through highly-skilled procurement professionals.

However, on the flip side, there are also a number of negatives raised. Organisations can lose control over day-to-day procurement activities, and through this there is increased risk; there is a potential for the quality of the work to adversely effected; and although procurement has been outsourced, there will still be a requirement to purchase these services and manage the subsequent contract, which may not provide all the time-saving benefits first considered.

Instruct the Experts?

There are a number of organisations in the market that offer procurement as an external service – Capita, GEP and Capgemini to name but a few. The similarities between the services? All of these ‘consulting’ organisations highlight cost savings in their literature and focus on areas such as analytics, research and digital procurement (areas where many organisations lack both expertise and time to carry this out) as a core offering.

From this you would think that a consulting-led service would provide a very attractive option for the public sector. After all, it ticks all the right boxes – improved efficiency, reduced costs and expert-led services. Taken from that point of view, why wouldn’t the public sector choose to instruct the experts, use resources elsewhere and watch the savings roll in?

Apart from being a gross over-simplification of the issue, it doesn’t take into account the wider considerations of skills and training. A decision to outsource in the short-term could lead to a skills shortage in the long-term, and the loss of the opportunity to bring these services back in house without having to set up a new function from scratch (with all the associated costs).

For the public sector, there is an additional consideration – perception. Government, Local Government and Local Authorities have to be particularly careful, perhaps more so than private companies, with public perception and what may be printed in the local and national newspapers. A decision like outsourcing a service, which will be paid for with public money, and for which there may be associated job losses, may not meet the relevant criteria even taking cost savings into account.

The reality is that there isn’t really a right answer for this question and no one correct view in the debate. The right decision now may prove to be the wrong one in hindsight, or due to the cyclical nature of procurement and procurement strategy, may be turned a full 180 degrees a few years down the line.

That said, it’s no time for public procurement professionals to rest on their laurels. There’s plenty to learn and plenty to do – it’s just up to us to make ourselves so invaluable an outsourcing decision couldn’t possibly happen.

Three Key Steps To Getting Brexit Ready

It’s been over two years since the UK voted to leave the EU. But beyond the exit date of 29 March 2019, little is known about the details of the Brexit agreement…
Negotiations between Brussels and Whitehall are rumbling on with little sign of a breakthrough. And the longer they continue the less likely it seems a deal will be struck.

A recent EU exit impact study conducted by Efficio for a UK central government department indicated a potential 8 per cent increase in costs as a result of Brexit.

Yet a poll of 800 business leaders carried out by the Institute of Directors has revealed that 49 per cent of businesses do “not anticipate drawing up nor implementing any contingency plans for Brexit”.

Similarly, a Survation survey commissioned by Maritime UK found that nearly half of businesses polled have done ‘very little’ or no preparation in anticipation of the UK leaving without a deal – despite two-thirds of business leaders believing such a scenario is ‘very likely’ or ‘likely’. Only 27 per cent  consider it ‘unlikely’, with another 8 per cent saying they are unsure.

Stick or twist?

Few can argue that these are unprecedented times, the likes of which Europe has never seen before. There’s no blueprint for untangling member states from the union – a situation made more complex by the need for Brussels to safeguard the EU project and potentially make the UK pay a high price for ‘independence’.

The majority of public and private sector organisations appear to be biding their time, waiting to see the terms of an exit agreement before they invest time and money in putting contingency plans in place. Is this a deliberate, tactical approach? Or could it be that procurement teams are unsure of what action to take and/or lack the capacity to deal with the task ahead?

Whatever the situation, now is not the time to hunker down and do nothing. On the contrary, businesses should be using these crucial few months to assess the scale of the impact on their supply chains and ready themselves to respond to what lies ahead.

Sourcing strategies, suppliers, contracts

Organisations should start by considering three core pillars of procurement, namely existing contracts, sourcing strategies and current suppliers.

1. Contracts

Form a clear understanding of your contract risk profile. Identify your risks against a hierarchy of needs. Examples of potential risks may include EU funding reliance, lack of freedom of movement restricting labour availability and driving wage increases or foreign exchange and tariffs creating cost pressure. Examine key contract clauses linked to EU exit readiness, such as termination, cost pressures and continuity resulting from legal change to determine where further risks may lie.

2. Sourcing strategies 

Review your existing category strategies to understand category objectives, sourcing strategies and the pipeline of work. Identify which elements will be affected by the EU exit and, where this impact is significant, determine how to take account of EU exit activity in your category plans.

3. Suppliers

Engage your suppliers and assess the wider market to pinpoint cost and risk drivers in key categories. Work with your suppliers to review expected pressures resulting from Brexit, their current mitigation plans and their view of the company’s main risks. Then encourage them to implement effective business continuity plans.

Deep knowledge of these areas, coupled with strong contingency plans to deal with change, are essential to manage risks and seize opportunities.

Act now to get ahead

Efficio is working with a number of public and private sector companies, including large central government departments, to carry out detailed readiness analysis ahead of the EU exit. The service is designed to prepare organisations to make fast, structured change and mitigate risk when the time comes.

To find out how we can support you in getting Brexit-ready, visit our website.

Late, Late For An Important Date? Why Time Isn’t On Public Procurement’s Side

Time is fleeting and never more so when a contract deadline is looming large. How can public sector procurement professionals use their time more effectively?

In the second in a series of articles on the challenges facing public sector procurement, we examine the issue of time and why it must be managed better.

Before we begin, I have a riddle for you:

This thing all things devours;

Birds, beasts, trees, flowers;

Gnaws iron, bites steel;

Grinds hard stones to meal;

Slays kings, ruins town,

And beats high mountain down

Extract from ‘The Hobbit’ by J.R.R. Tolkien, 1937

Those of you familiar with the great J.R.R. Tolkien will recognise this as one of Gollum’s riddle to Bilbo Baggins in ‘The Hobbit’. The answer? Time, of course.

Time is the one thing none of us can avoid and all wish we had more of. How many times have you wished you had an extra hour before a work deadline? And that’s before we even consider more time at the weekend, or an extra hour in bed!

For public sector procurement professionals, it frequently feels like time is not on our side. An increasing volume of ‘Business as Usual’ work, combined with new ‘one-off’ projects, means it can feel like a juggling act to meet all the relevant deadlines.

In the public sector, these deadlines can sometimes mean the difference between the delivery or not of critical goods or services across a city.

It often feels like we’re like the White Rabbit from Alice in Wonderland, constantly running late for an important date. And the more time pressure builds, the more likely it is that mistakes will be made, costing even more time in the long run.

Typos in letters, ambiguity in specifications and issues with evaluation or award criteria – they all have the power to send us back to the drawing board. Getting it right first time is critical as the more time spent doing tendering, the less time there is to actually manage contracts.

When it comes to creating the value and savings required in the public sector, contract management is key. After all, you can agree savings in a pre-contract phase, but without effective contract management, organisations will typically lose 50 per cent of this value in the first year of the contract.

And that is why we need to manage our time more effectively.

More Haste, Less Speed

Before looking at how time might be managed more effectively, it’s worth examining why procurement in the public sector can be so time consuming.

Public sector procurement is a very bureaucratic, very legalistic, very risky – for both buyers and suppliers – and, ultimately, very slow process.

For procurement exercises above the EU Procurement thresholds, and requiring advertising through OJEU (Official Journal of the European Union), it’s not unusual for the process to take up to nine months (and frequently even longer) from identification of need to the award of a contract.

And while that may seem like a complete anachronism to those of you in the private sector (and believe me, it did when I first started in the public sector), there are good reasons for this. The process is aimed at promoting competition and procedural conformity, not necessarily value for money, though this is what most public procurement professionals are aiming for.

Greater competition allows for more open and transparent tendering and contracts, where SMEs, local suppliers and parties that may not ordinarily have access to these markets can get involved. A wider supply base may lead to new ideas, innovations and process improvements while at the same time potentially being a boon to the local economy.

The bulk of this time is taken creating a set of fully auditable documents for any procurement exercise above these thresholds. This includes a sourcing strategy, outlining key decisions and the reasons for them, detailed tender documents, including specifications, selection and award criteria, and a fully tracked evaluation process.

The type of route to market will, of course, be determined by the product, service or public works being procured. The detail of all of these routes is too much to go into here, but you can find a lot of useful information on ‘The Procurement Journey’, if you want to understand the end-to-end process.

There is limited scope for reducing the time taken to complete these processes, so where can time be saved to allow for more contract management? This is where good planning comes in.

Proactive Procurement

Procurement could be accused of operating in a reactive manner and it’s no different in the public sector. However, this can often be attributed to the nature of procurement’s place in the organisation and the changing nature of how organisations operate and procure goods and services.

The increasing number of ‘one-off’ projects, on top of the ‘Business as Usual’ work, can make even the best procurement functions feel like there is a never-ending volume of tenders to complete (referred to as the “tender sausage machine” where I work).

Moving from a reactive to proactive approach can help in this and crucially buy more time for that all important contract management. There are three suggestions below to help make this work, but it’s important to understand the caveats on these at the same time.

Making this a reality takes not only input from procurement, but from all its stakeholders and end users across the organisation. Procurement needs to be seen as a key strategic function and help mould the strategic direction that underpins procurement requirements.

That said, there’s still plenty scope for procurement to make changes and help things run that bit smoother.

  1. Proper Planning Prevents Poor Performance

This is very simple to say, but very hard to do. Get all your contract details in one place, including the dates of when they need to be retendered or procured and plan accordingly. Have quality project plans available to help understand when the procurement process needs to start and the key dates involved. Most importantly, share these dates with your stakeholders and then stick to them.

  1. Don’t “Boil the Ocean”

Once you know the procurement requirements, assess the market to see if other organisations or Local Authorities are doing the same or have been there before. Ask for documentation – my experience is that people are only too willing to share if they know it will be reciprocated in the future.

Also check out organisations like Scotland Excel, Yorkshire Purchasing Organisation (YPO) and Crown Commercial Services (CCS) for frameworks. If the framework is applicable, that’s half the work done for you and a major time saver.

  1. Kick-off Means Buy In

A kick-off meeting is a good way to get all the appropriate people in the room to discuss the requirements of the contracts and make sure that all the vital details are captured. Getting this done up front not only means you are better prepared, but you also get buy in from stakeholders who feel involved and will be better placed to help push the project along.

These suggestions by no means cover everything that can and probably should be done to make the procurement process more efficient. However, from the point of view of marginal gains, making these adjustments should help increase procurement efficiency and free up time to manage the contracts you’ve put so much effort into creating in the first place.

Not Worth The Money – Will Entrepreneurs Avoid Business in Britain?

The Great British Pound is in trouble again this week and it’s making budding entrepreneurs think twice about their business plans.

Talk of a Hard-Brexit Sparks Global Concern

The pound plummeted to a 31-year low last week sparking global concern. The crash followed Prime Minister Theresa May’s announcement on Sunday 2nd October, which revealed a firm timeline for triggering Article 50 and the beginning of Brexit. Extra fuel was added to the, already well-stoked, fire when the media reported that she would opt for a complete break from Europe- a “hard brexit”. Reports  already suggest that a “hard brexit” could result in a loss of 70,000 jobs and cost £10bn in tax receipts.

With the pound sitting at $1.27 against the US dollar, chancellor Philip Hammond scuttled to New York with the hope of reassuring America’s biggest banks about the consequences of Brexit. He will try to convince the Wall Street powerbrokers that London will maintain its position as the world’s leading financial centre once the break from the EU is complete.

The pound is also falling against the euro this week, hitting a five-year low and continuing to escalate concerns.

Weak Pound Triggers Rise in UK Services Sector Prices

The dropping value of the pound is already affecting the UK services sector as input prices rose to a three and a half year high in September 2016.

David Noble, group CEO, CIPS, said: “Firms raised their prices in response, to counteract increased costs for fuel, food and elevated wage bills and as the weaker pound had an effect.”

Companies demonstrated their concerns at the ongoing uncertainty over Brexit implications through their reluctance to forge ahead with confidence.

“It’s clear that the pace of expansion has cooled since the first half of the year, reflecting widespread concern about the potential future impact of Brexit”, David commented.

Is Brexit Scaring Off Entrepreneurs?

The aftermath of Britain’s Brexit referendum back in June 2016 saw a strong display of optimism from many entrepreneurs. Indeed, a survey conducted by the Financial Times confirmed that the majority of founders and investors had confidence in London retaining its status as Europe’s biggest center for start-ups. But, is there a change in the wind?

Diana Paredes, CEO & Co-founder at Suade Labs and passionate entrepreneur spoke with Business Insider last week about the effects Brexit will have on entrepreneurship.

She questions why anyone would opt to start a business in the UK given the current economic climate. Operating in London adds a premium in terms of housing and talent and people often see the many business opportunities on offer as a justifiable compromise for quality of life. However, with the future so uncertain, is it worth the risk and sacrifice?

Existing organisations might also be keen to relocate their bases to elsewhere in Europe where it is cheaper to operate, less isolated and they can continue to be regarded as a European company and not simply a British one. 

If you’re an entrepreneur, what are your thoughts? Is the dropping value of the pound enough to make you run a mile from UK business? Let us know in the comments below.

Find out what else has been happening in the world of procurement and supply this week…

Samsung in Trouble Again

  • It’s been a month since Samsung recalled its new flagship phone, the Galaxy Note 7, following several cases of it exploding and injuring customers.
  • The company have been issuing replacement devices to customers who bought Galaxy Note 7 phones.
  • However, a Samsung recently started smoking uncontrollably on a flight before takeoff, forcing the cabin crew to evacuate the plane. This could lead to a second recall and a disastrous outcome for Samsung.
  • Google announced its Pixel smartphone this week and could be well placed to steal a whole host of disappointed Samsung’s customers.

Read More at Business Insider

Uber’s Self-Driving Cars

  • Uber’s self-driving car pilot program may want to fasten its seat belts after the bumpy beginning it has reportedly gotten off to.
  • The cars have reportedly gotten into accidents and ignored traffic signs during testing in Pittsburgh, Pennsylvania.
  • Whilst it is still very early days for self-driving cars, it’s believed that they are, ultimately, inevitable given the overall, enticing end-game which should see the cars combatting road deaths.

Read more at Tech Radar

Supply Chain Leaders Pressured to Embrace Climate Change

  • Business for Social Responsibility (BSR) meets next month in New York with the current cri de Coeur being “bold climate action”.
  • Analysts have observed that multinationals must raise their ambitions by investing in climate finance, transition to renewable energy, and find more innovative was of ensuring resilient supply chains.
  • As well as encouraging change in organisational culture to embrace clean energy and other climate solutions, BSR insist that supply chain managers join Corporate Social Responsibility (CSR) managers in becoming .intrapreneurs.
  • Supply chain managers can – and must – play a major leadership role in addressing the alarming consequences of aberrant global weather conditions.

Read more at Supply Chain 24/7

Drones Tested for Emergency Cell Service

  • Verizon Communications is testing the deployment of large-scale drones to provide mobile connectivity in emergency situations when the land-based cellular network has been damaged.
  • The drone which is being flown by American Aerospace Technologies, is nothing like the small, quad copter devices flown by amateurs at home. With a 17-foot wingspan, Verizon’s drone more resembles the types of unmanned aircraft used in the military.
  • Data gathered in Thursday’s trial will be shared with the FAA in order to help craft future rules regarding drones, Verizon said.

Read more at Fortune

MasterCard & Basware create new platform to speed-up supply chain payments

Hungry for your weekly news fix? Join us as we reveal what’s been happening in the world of procurement during the last seven days.

Basware and MasterCard launch an automated supply chain finance platform

  • Basware has the largest electronic invoicing network in the world — one million organizations generating 80 million transactions a year, worth $500 billion, and growing at 50 per cent annually. MasterCard has one of the largest payment networks, and it is fully global.  They’ve joined forces and created Basware Pay.
  • The solution connects buyer’s and supplier’s payment processes through the Basware Commerce Network which provides an open and interoperable network that only authenticated buyers and sellers can use. Once the invoice is approved by the buyer it becomes available for payment through a virtual MasterCard account number. The combination automates invoice processing and ties the invoice information to the payment, all within a secure, closed environment using MasterCard’s single-use Virtual Account Numbers (VANs) for protection.
  • Hany Fam, President, MasterCard Enterprise Partnerships, said the opportunity is huge: “This market is nascent and in size it is bigger than the entire consumer market. It is very under-penetrated electronically. While the consumer space is 85 per cent non-electronic, this is north of 90 per cent.”
  • “MasterCard is global and none of the others operated globally. We can offer a global solution.” MasterCard is brand agnostic — it will accept payments from Amex and Visa, wires, or even cash, and it works with other business networks, like SAP ’s Ariba.

Read more on Forbes.com

Gartner reveals best regional supply chains

  • Gartner has published its annual list of leading supply chains in Asia Pacific with ten regional companies making the list.
  • Gartner Research Director James Lisica says that Asia Pacific supply chain leaders continue to create agile and lean supply chains capable of dealing with regional challenges. “We have observed some key themes across most industry segments that include building customer-centric supply chains, aligning to local markets while still serving global customers, strengthening risk management processes, improving cross functional communication, driving operational excellence to achieve fiscal discipline and prioritising talent management programs,” he says.
  • The top three is made-up of the likes of Samsung, Lenovo, and Toyota.

View the list in full at Techday.com

Jamaica to benefit from regional procurement system

  • The Regional Integration Electronic Public Procurement System, which is to be implemented across Caricom member states, is geared towards the liberalisation and integration of the regional market for trade in goods and services. This involves establishing and maintaining a regime for the free movement of goods and services within the CSME. The programme is being implemented by Caricom, with funding support from the European Union.
  • Ivor Carryl, programme manager for the CSME at the Caricom Secretariat, disclosed that a regional approach to public sector procurement, supported by a regional procurement system, can bring many benefits to the Caribbean region, and can be one of the key pillars for the advancement of the Caribbean integration process and the CSME.
  • “You are looking at a market that is somewhere in the vicinity of US$17 billion annually and for a region of five and a half million people (with the exception of Haiti). That’s a lot of money,” he added.

Read more on Jamaica Observer

Is Apple’s supply chain a risk to the company?

  • If the rumors are to be believed, Apple‘s newest product, the iWatch, will be announced at its Sept. 9 event but possibly won’t ship until 2015 because of supply chain issues. This was originally reported by Apple analyst Ming-Chi Kuo, and subsequent memos have pushed back the launch date from October to early next year.
  • Based on a thorough analysis of Apple’s supply chain, Kuo has been relatively accurate on delays. He predicts a delay in Apple’s larger-size version of its newest iteration — the iPhone 6, a 5.5-inch “phablet” model — pushing the release date for that unit back to 2015 as well.
  • A slightly ironic point is that these issues seemed to crop up after Tim Cook took the reins. Widely considered a “supply chain maven” among the analyst crowd, Cook started his Apple career as a senior vice president for worldwide operations. Through a relentless focus, he quickly fixed the supply chain, eliminating lags from months to days. Cook was promoted to chief operating officer before becoming the company CEO in the wake of Steve Jobs’ declining health.

Procurement has traditionally had ‘low status’ in UK government

  • The National Audit Office (NAO) said the government “fails to recognise the value of contract management” and “it is doubtful that the government can improve its capability to be able to have the best contract managers on all its contracts”.
  • In Transforming government’s contract management the NAO said current reforms were “going in the right direction” but there is “a lot still to be worked out”. “Too often contract management has been seen as delivering the deal that was agreed when the contract was signed. This has meant that contract management has been seen as a way to avoid things going wrong, rather than unlocking value,” said the report.
  • Amyas Morse, head of the NAO, said: “For several decades, governments have been increasing their use of contracts with the private sector to provide goods and services. This has produced successes but also thrown up major new challenges, which are not easy to surmount. “Not the least of these is the need to build up the commercial skills of contract management staff, both in departments and in the centre, and enhance the status and profile of their role.

Read more on Supply Management

Businesses urged to register for supply chain programme (Durham, UK)

  • NEPIC’s BASME (Business Acceleration for SMEs) programme was set up in 2012 to help regional firms which are keen to increase sales to companies within the sector.
  • So far the programme, which is financed by the Regional Growth Fund, has supported the creation of 450 direct and indirect jobs in the North East and 360 businesses have registered to be part of it.
  • Felix O’Hare, BASME Project Manager at NEPIC, said: “NEPIC launched BASME to help SMEs in the process industry supply chain to develop their sales to the sector. Using a mentoring approach with some of the sector’s most experienced managers, businesses are able to learn more about what companies look for when sub-contracting work so they can be in the strongest possible position to succeed.

Read more at BDaily