First published on 15 May 2015. My question to you is how much has changed in 2017? And should it always be about cost?
In the wake of the UK General Election it’s time to think about what role public procurement might play in the years ahead. On the face of it our target is clear. We need to deliver the same for less cost: lower contract prices, less contract failures, better negotiations to reduce costs during the contract period.
But should it always be about cost?
Is it really as simple as that? Are there instances where increased value might be a better outcome for the tax payer than the race to the lowest price?
The starting point for this debate must be Jules Goddard’s seminal article The Fatal Bias. Goddard strongly advises that we should take heed of research that shows a race to reduce costs, in most instances cannot and will not result in organisational success; indeed the opposite can be true. Using the powerful example of Dyson he suggests that a policy of building quality into our products can be spectacularly more successful than a cheap and cheerful approach.
So how does all this relate to public procurement and in particular the challenge now faced by professionals in this current period of fiscal austerity?
There’s the danger for us all in public services, to quote Goodard that:
A climate of excessive frugality focused relentlessly on the denominator of any calculation of [savings]… ends up being an inwardly-focused culture that, in the words of Oscar Wilde, knows the cost of everything but the value of nothing.
There’s a danger then that as we respond to the pressure to deliver savings, as we race to slash costs, screw our suppliers, reduce specifications and move the emphasis away from quality that we find ourselves delivering poor outcomes and squandering the investment of tax payers money on short term fixes. A position too dissimilar position to a notable UK retailer methinks.
What then should be the strategy in these pressed financially austere times?
Does it really make sense to focus on cost reduction for strategic commodities like social care services?
Here’s some food for thought from a private care home providers on the issue
“You lose money by having only social services funded residents – so how do you make up for it? Providing rubbish care. There are some homes that are basically warehouses keeping people alive.”
In procurement we can help to facilitate the debate with thorough research on cost drivers in the market and a focus on performance specifications when commissioning care. We need to work with providers to facilitate personalised care.
On the other hand many in the public sector have seen the provision of core IT systems as a strategic commodity. A commodity where quality, epitomised by the ability to tweak and tailor a system to the nth degree to suit our organisation’s peculiarities, surely must be part of what we buy.
Bespoking coupled with fragmented or non existent procurement strategies and limited collaborative buying have led to some niche providers going from strength to strength in terms of revenue growth and EBITDA.
But do we really need all those personalised whistles and bells?
The challenge here surely for procurement to facilitate collaboration and facilitate a real debate on the opportunities for not only cost reduction but increased efficiency presented by standardised processes and the use of off the shelf cloud based solutions to enable suppliers to pass on cost savings by a reduction in the requirement to bespoke every product they sell.
To meet the austerity challenge we need to think fast and slow
Thinking fast, where it makes sense to aim for lowest price and deliver savings. But this alone just won’t be enough.
Thinking slow for commodities where working with providers to improve outcomes may be a “spend to save” exercise after all.
So next time you’re faced with a savings target to deliver be bold and think value too. Because delivering austerity might not just be all about cuts after all.
What examples do you have of where you’ve increased value rather than focussing on reducing costs? Why not submit them in the comments box below.