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The Deficit, OEP and what it means for FE

College Procurement *
(* and everyone else in the UK)

Peter Smith

psmith@procurementexcellence.com
Tel 01276 691770

April 2010

ProcurementExcellence

Peter Smith

CIPS Past President


CPO NatWest, DSS etc
Founder of Procurement Excellence
Non-executive Director of Remploy
Developed OGC Procurement Capability Review
model
Worked with local authorities, Departments,
Trusts, NAO, Audit Commission etc.
Blogger and author
April 2010

ProcurementExcellence

Peter Smith
http://blog.procurementexcellence.com/
News, views and opinions from the world of
procurement and supply chain
Lots of public sector stuff including The Perfect
Storm; our view of the future of public
procurement
Also the monthly
album review!
ProcurementExcellence

April 2010

Buying Professional Services

April 2010

ProcurementExcellence

Agenda for today


Government efficiency and
savings
The current economic position
What it means to you
Plus time for questions and
discussion
April 2010

ProcurementExcellence

History of efficiency in
Government
Gershon 2004 Efficiency Review
CSR 07
Operational Efficiency Programme

April 2010

ProcurementExcellence

History of efficiency in
Government
Operational Efficiency Programme

The reviewed areas and lead advisors were:


back office operations and IT, led by Dr Martin
Read
collaborative procurement, led by Martin Jay
asset management and sales, led by Gerry
Grimstone
property, led by Lord Carter of Coles
local incentives and empowerment, led by Sir
Michael Bichard

April 2010

ProcurementExcellence

History of efficiency in
Government
Operational Efficiency Programme

Key procurement findings:


Increase scope of collaborative activity
More collaboration, more use of Buying Organisations
Need better information
Transparent collaborative business models and
governance
6 billion savings estimate through greater
collaboration

April 2010

ProcurementExcellence

History of efficiency in
Government
Government makes huge claims for savings:
Building on the SR04 Efficiency Programme, which
successfully delivered over 26.5 billion in savings,
and on plans to deliver another 35 billion in
savings as part of the CSR07 value for money
programme. etc.
The NAO says:
25% of savings are real
50% some doubt
25% not real
April 2010

ProcurementExcellence

History of efficiency in
Government
But up to now...it hasnt really mattered.
If real efficiencies were made, great;
organisations could re-invest those
savings
If they werent made, or weren't real, the
organisation still had enough funding to
do what was planned anyway

THIS IS ALL ABOUT TO CHANGE


April 2010

ProcurementExcellence

10

Dont like to worry you but....


The Conservatives require cuts of 63.7 billion from
an unprotected spend of 241 billion
That is OVER 25% spend reduction by 2014/5
Identified cuts (inducing freeze on public sector pay,
pensions changes etc) account for about 11 billion
52.5 billion (over 80% of total) is not yet identified.
2010/15 to be the tightest 5 year period for
government spending since (at least) WWII
(all data from the Institute of Fiscal Studies)

JUNE 2007

ProcurementExcellence

11

Economic position
tilt
ld
u
o
'c
t
n
e
Hung parliamreek-style
G
Britain into
rmoil'
u
t
l
a
i
c
n
a
n
fi

The

intro new go
grea duce d vernme
eep
n
ter t
ax h er sp t must
end
ikes
ing

cuts

a c ut o

and

The UK economy will crawl


f 6bn
in p u b
spendi
lic this year and expand less than
ng this
year
would
previously forecast
mean
3
0
public
six
sector ,000
y
b
worker
ise
getting
the
r
r
d
e
l
s
v
u
the sa
o
o
c
d
n
s
ck
u
e
Tax in the po lash
Bank of E
s
e
n g la n d
o
c
t
n
s
e
r
p
Governo
ea
y
r: poll w
0

1
g
t
n
x
i
inner
e
will be o
w
n
ro
r
u t of p ow
o
b
lic
er for
a genera
b
u
p
tion
April 2010

ProcurementExcellence

12

Effect on colleges (and pretty


much everyone else)
Its going to be bloody
Efficiency savings will be exposed if they
are not real
Cuts to services and jobs will be necessary;
but genuine procurement savings will
minimise the pain

There is no panacea that includes


collaboration
April 2010

ProcurementExcellence

13

Saving money through


procurement
Cost reduction is only one aspect of
improving value
Others include getting more (quantity or a
higher specification) for the same money
But REAL CASH COST REDUCTION is what
is going to matter
And there are only a few ways to deliver
that
April 2010

ProcurementExcellence

14

The solution
The only way in which the required savings can
be delivered will be through relentless attention
to the whole spend management process.
....public procurement should re-focus on this
wider picture, and re-brand public procurement
as spend management. That will require effort
in promoting proactive demand management to
cut off spend at source; in rationalisation of
specifications; in aggressive and commercial
contracting; and in skilful and value driven
contract and supplier management.
(The Perfect Storm White Paper, Procurement Excellence 2010)

April 2010

ProcurementExcellence

15

Saving money
5 ways to save
money

DEMAND MANAGEMENT
SPECIFICATION MANAGEMENT
MARKET MANAGEMENT
COMMERCIAL MAMNAGEMENT
TRANSACTIONAL MANAGEMENT

April 2010

ProcurementExcellence

16

Demand management
Buy less
Reduce or eliminate the need for the
goods or services
Travel
video conference
IT life-cycle
Control professional services, contractors
Monitor consumables usage

April 2010

ProcurementExcellence

17

Specification management
Buy a cheaper or more appropriate
specification of product of service at
lower cost
Down-spec on IT or other equipment
Reduce frequency of cleaning,
maintenance
Look hard at travel and other policies
No frills approach to everything
April 2010

ProcurementExcellence

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Market management
Change supplier to one who can offer a
lower price for equivalent goods or
services
Understand the market
Consider collaborative options
Do include the cost of change in your
assessment

April 2010

ProcurementExcellence

19

Commercial management
Negotiate a better deal from current
suppliers
That may mean them reducing their
margin or coming up with ways to
reduce their own cost base
Not always easy in the public sector

April 2010

ProcurementExcellence

20

Transactional management
Reduce the cost of the overall transaction
Elements of cost lie in letting the contract,
ordering, invoicing and payment,
management of the relationship....
Consider use of GPC, electronic catalogues
Collaboration helps here

April 2010

ProcurementExcellence

21

WARNING
Collaboration, developing huge
procurement organisations, or even more
use of current collaborative ventures will
not IN ITSELF lead to cost reduction
You should look hard at collaborative
options but remember that you can buy
very expensive things and lots of them
from consortia!
You have to do stuff in your organisations
to make cost reduction happen
April 2010

ProcurementExcellence

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And remember....
Every pound you save helps towards
maintaining another public sector job
and sustaining strong public services
So...consider yourselves SPEND
MANAGERS
And good hunting!
April 2010

ProcurementExcellence

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Thank you

Peter Smith

psmith@procurementexcellence.com
Tel 01276 691770

April 2010

ProcurementExcellence

24

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