Can Green gain true visibility of government spend?

In an interview with Radio 4’s Today programme last week Sir Phillip Green, billionaire owner of the Arcadia Group, told how he felt procurement offered a real “opportunity” to save money for the government in its bid to reduce costs, describing how he and his world-class team would be scrutinising government spend as part of the external efficiency review that David Cameron has asked him to conduct.   

With short timescales and deadlines Sir Phillip’s first goal is to identify where funds have been spent. “We need to obviously accumulate a large amount of information across some key areas of spend.....It’s all a question of what availability of information there is, how good the information is, that we’re able to respond”. He added “I think what we need to do is, we need to get ourselves focused on the big spends in which departments, where is the money actually being spent?”  The question now is – will Sir Phillip and his team gain clear visibility of government spending in order to truly analyse where efficiencies can be made?  

In our recent ‘doing battle with the deficit’ survey into the opinions and attitudes of public sector procurement professionals we discovered that 82% of survey respondents believed that savings are most likely to come from spending efficiency, but only 6% believed their spend management processes were ‘highly efficient’.  Over 25% of procurement professionals in the public sector questioned did not know what proportion of their organisations overall spend was ‘maverick’ or off-contract’ and an indication of the wide and varied manual, part-manual and fully automated spend management processes could also be adding to the lack of visibility and accurate reporting.  

Process automation and purchase-to-pay solutions provide clear and accurate visibility – the first step towards analysing spend and identifying where savings can be made. Without solutions such as these in place across all areas of the public sector – how will Sir Philip meet his challenge?

From our recent ‘doing battle with the deficit’ research' into the opinions of public sector procurement professionals and a roundtable debate we hosted, the opinion and message of those on the frontline of the battle with deficit repair is clear ‘procurement can make a difference, let us take on the challenge’.

Frustration from procurement professionals is evident as Barbara Cairney, head of procurement for Northamptonshire Police commented at the debate “It is a shame that it has taken the current financial situation to bring procurement to the fore, but there is an opportunity to shape the future of the public sector and bring more of our commercial knowledge into play”.

Now it would seem that Sir Philip Green, owner of Arcadia Group agrees that procurement offers a great “opportunity” to save money in the government. Sir Philip has been asked by David Cameron to head up an external efficiency review into government spending ahead of the published spending review in October. You can hear how Sir Philip thinks procurement plays a key role in spending efficiency for the government by listening to his interview with Radio 4’s Today programme.

Alongside Durham University, Wax Digital recently undertook a research programme to investigate the opinions and outlooks of public sector procurement and finance professionals towards deficit repair. Somewhat surprisingly the findings revealed a positive and pragmatic viewpoint from those leading the charge into battle with the deficit.

Although it was acknowledged that times ahead are going to be difficult with 78% of respondents anticipating budget cuts of more than 5% this year and 69% expecting these cuts to increase the following year; the individuals at the frontline are still keen to forge ahead with cost-saving initiatives and processes. It was evident that public sector procurement and finance teams want to simply get on with the challenge and recognise that they need the freedom and the tools to do so although this is not always possible. Bureaucracy and lack of automation were highlighted as obstacles that they face.  

Process automation and technology was highlighted as key enablers to drive efficiencies, cost savings and help achieve the targets set by the new coalition government; findings also revealed that where eProcurement solutions have been introduced savings have been realised. 53% of the sample saved between 10% and 50% from new IT solutions.  

From working with both public and private organisations we have seen the difference that these types of solutions can bring and how those forward thinking organisations that drive change and purchasing initiatives reap the benefits. This is in stark contrast to only 6% of the public sector survey respondents who felt that their spend management processes were “highly efficient”.  

With the challenge clearly set by the new government it is time for public sector procurement and finance professionals to lead the charge into the battle with the deficit, but do they have the armouries to fight a good fight?

Download your copy of the research report and post your comments, sharing your thoughts about the emergency budget and the challenge of deficit repair for the public sector.

Immediate Whitehall cuts of £6bn have now been tabled by the new government as the first stage of deficit repair, with savings expected to be made in three areas: reduced public sector recruitment, scrapping IT projects and renegotiating contracts with dozens of Whitehall suppliers.

But swift and rapid savings don’t necessarily need to mean swingeing service cuts, nor should they impact on IT expenditure where there is a swift and highly tangible ROI case.. It’s possible within the space of weeks to achieve contract savings of over 10-20 percent in many areas through well targeted supplier auction events for example, yet many government departments still don’t have a consistent e-auctions policy.

Some of the realised savings from auctions could then be invested in automating public sector buying, ensuring that all spend is on contract and enabling buyers across multiple public sector bodies to collaborate more effectively on purchasing to create a win-win situation of lower prices for buyers and higher volumes for selected suppliers, with process cost savings for both.

Addressing the complexity of purchasing and spending is the real challenge the new government faces but that will not be solved by a slash and slice mentality. There is a proven path to rapid cost savings without bringing valuable long term initiatives to a halt and forcing unnecessary headcount cuts.

Following on from our earlier post – we take a look at the Liberal Democrat Manifesto and how procurement features in their spending cut plans in comparison to the other two main parties.

Government defence projects come under scrutiny by the Liberal Democrats as part of their plans to save £15 billion year-on-year. Nick Clegg pledged to revisit all major spending projects through the strategic spending defence review ensuring that procurement costs were kept low.

 IT procurement projects would also come under scrutiny according to the manifesto with expensive technology options to be reconsidered with alternative approaches including open-source software and cloud computing.

The Liberal Democrats are also keen to adopt policies that would encourage the procurement of green products including fair trade and sustainable products building on their planned investment of green energy, technology, housing and transport.

Post your views on how you think each party’s policies will impact upon procurement and watch this space for our post-election blogs and reactions.

In the run up to what promises to be one of the most closely fought elections, we take a look at how the two main parties factor procurement into proposed spending cuts, tackling the UK deficit and their election policies. 

Conservative Manifesto: Procurement to drive innovation

The Conservative manifesto has declared that the way in which purchasing is managed and conducted will be the key to promoting enterprise and innovation. Some of the details include:

·         A pledge to allocate 25% of government procurement contracts to SME’s by reducing administrative costs relating to bids.

·         All government tender documents over £10,000 will be published on the Supply2gGov website

·         Large ICT contracts will be segmented into smaller contract components providing opportunities for SME’s

·         Visibility of government contracts and projects over £25,000 for purchasing of all goods and services

·         Visibility of all project details that are awarded £25,000 or more of EU funds

·         Reform of the MOD’s procurement processes to reduce running costs by 25%

Labour Manifesto: Procurement to prioritise local people

The UK Labour party has pledged priority to local people from future public procurement, as part of their move to tackle immigration issues. They will also be focusing on government spending and overhauling department structures; some of the details include:

·         Reducing back-office and property running costs

·         Abolishing unnecessary quangos

·         Reducing costs on consultancy, marketing and lower priority spend areas

·         Reforming defence spending by reducing civilian staff , cutting costs  at headquarter offices and reducing consultancy and travel costs

·         Improving efficiency throughout police service procurement

In either case there’s no surprise that procurement and spending feature very strongly in this year’s general election issues.

We’ll be looking at the Liberal Democrat manifesto in upcoming blogs as we approach Election Day on May 6^th.

Automotive manufacturers Renault and Nissan recently announced that they have teamed up with German car maker Daimler on a joint purchasing initiative. By exchanging equity stakes in each organisation, these three automotive leaders have pledged to work together in developing technologies for small and electric cars, light commercial vehicles and next generation models.

In addition to product development plans, this unity of Renault, Nissan and Daimler provides the opportunity to benefit from common purchasing opportunities, share technology costs and gain scale. This collaboration perhaps indicates the need to share (albeit with competitors) in order to strengthen and reposition those organisations that have been the hardest hit during the recession and the automotive industry has undeniably been one of the industry sectors most severely affected.

Other collaborations such as this being common practice in public sector can increasingly be found in the private sector, and observing whether this trend continues once the recession subsides will be interesting - will we continue to see ground-breaking purchasing initiatives that generate joint business advantages or will competitive enmities resume?

In either case we are trying to lay foundations for suppliers and buyers to work more effectively together by investing in technology to support the collaboration between buying groups and supplying groups.

Up to £2million of goods were recently stolen in a scam by fraudsters posing as McDonalds buyers. Items including laptops, TV’s and computers were targeted with credit periods obtained between 30 and 90 days.

The goods were delivered to an address in Manchester, but were never paid for. Greater Manchester Police Authority issued warnings to businesses to stay on alert as it is thought the fraudsters are now using the same scam to obtain foods, wines and spirits.

The process automation that class-leading, on demand purchase-to-pay systems can offer, coupled with integrated supplier portals, provides a secure platform whereby buyers can effectively manage their supply-chain with the assurance of compliance and control throughout all standard processes including credit checks, finalising terms of business and other legalities.

This does not however protect the supplier, who when receiving a new buyer request from what appears to be a reputable organisation, should still develop that all important supplier/buyer relationship and carry out all their necessary checks.

The higher education sector is the latest to face government announcements of budget cuts, with Lord Mandelson recently proposing further cuts of £135 million, taking the total up to nearly £400 million during  2010-11. This has raised many concerns both inside and outside the industry as to how this will affect spending on a per student basis, capital purchases and intake numbers.

It’s fair to say reducing costs is high on the agenda for many universities and higher education organisations, although here at Wax we have already seen the shift change in traditional procurement methods and technology requirements within the HE sector..

One university ahead in terms of assessing and reducing costs across the organisation is a client we’ve been working with for some time who through the use of source-to-pay technology is reaping the benefits ahead of the proposed budget cuts.

With savings in excess of £400,000 from just two eAuction events for facilities management and uniform contracts and the technology to cement the savings generated in these and other areas such as IT and Stationery this leading UK University now have the tools, technology and know-how to deliver future significant savings and beat the budget cuts.

Find out more about how we have helped cut costs in key higher education categories through effective eSourcing.

During recent market instability it's been recognised that effective collaboration between key organisational functions - Procurement and Finance, can help mitigate risk whilst maximising opportunities throughout the source-to-pay cycle.  

By achieving clear collaborative visibility, organisations can potentially prevent high-value risks and liabilities, as well as gaining opportunities to deliver savings, achieve financial goals and benefit from process efficiencies. 

We’ve worked with numerous class-leading organisations and have seen how the gap between finance goals and procurement deliverables can be bridged with the utilisation of eProcurement technology, whilst gaining greater visibility and control; one of the issues we'll be discussing in more detail at our forthcoming Masterclass events. 

Feel free to visit the events page of our website for more information, or why not post a comment on your thoughts? We welcome comments from both sides of the procurement/finance spectrum, hearing how other organisations have faced and overcome these challenges.