Can public sector procurement get a grip on SRM?

Former Group Commercial Director at DEFRA and former Commercial Director at TfL Andy Quincey shares his thinking on collaborative working, greater innovation and more focused supplier management.

The public sector’s remit of delivering services to citizens and providing value for the taxpayer is closely aligned to the goals of the procurement function.

Effective supplier relationship management (SRM) is necessary for the smooth provision of those services and to save money, just as it is in the profit-driven private sector.

SRM within public services should not function to replenish the government’s coffers in quite the same way however. Any benefits realised from SRM should instead translate into money being channelled into the areas where it’s most needed.

So it’s not surprising that the Civil Service Board has prioritised the improvement of commercial skills and capabilities – and securing the best deals for government – as one of its top three priorities since 2015.

Sir Jeremy Heywood, Cabinet Secretary and Head of the Civil Service, has pointed out that great commercial contracts make great services, adding: “A common theme in many of the success stories is getting the right commercial contracts in place.”

Once the contract has been signed, this means using effective SRM, greater procurement innovation and collaborative working.

Managing public sector contracts

One complexity of this is the range of stakeholders within public services. Unlike the private sector, where stakeholders tend to be shareholders, customers and the workforce, procurement functions must also meet the diverse needs of politicians, local groups and interest groups.

In addition, the stakeholders at the beginning of a public sector contract and those at the end may differ and change frequently as a result of internal and external factors.

This increases the emotional quota on a project, which is exacerbated by the many different interpretations of what value is in the public sector, compared with the overarching goal of shareholder value and profit that prevails in the private sector.

If public sector procurement professionals are to deliver the outcomes required by taxpayers and service users, they must manage contracts to ensure these are achieved. A piece of paper will not implement itself, and the contract must be brought alive by the procurement function.

Suppliers in the public sector need to deliver the services that they are initially contracted for – they need to deliver the outcomes that public sector organizations are trying to achieve for taxpayers and service users in a way that provides value for money.

This is particularly important when managing the many large and complex projects undertaken in the public sector, where risks often materialize during the lifespan of the contract.

Assuming a project will be implemented without further issues is a mistake. It is incumbent upon commercial functions in the public sector to not just manage projects, but create a process and ensure they can manage those risks as they appear – and mitigate them as much as possible.

Encouraging suppliers to innovate in order to improve the management of their service offering can help address risks and reduce spend, especially if third-party supplier spend exceeds internal charges.

Working with suppliers to innovate demonstrates what commercial teams can deliver, instead of merely aggregating requirements together and buying cheaper. 

Managing suppliers post-award

While I was at the organization, TfL spent significantly more on third parties than it did internally, so took steps with suppliers to improve service outcomes and qualitative relationships to improve supplier performance.

The organization also introduced a number of innovative products by developing an innovation portal for companies in the supply chain and supplier days for them to suggest innovations. This allowed TfL to focus on the effectiveness of where it was spending a lot of money.

Yet many public sector organizations don’t put as much focus on the supply chain from a supplier management perspective, even though the majority of their spend goes on it.

While they, quite rightly, focus on internal processes which come into contact with functions such as finance and HR, they may not be focusing on what is often the biggest area of influence they have — third-party spend.

On the whole, however, the public sector has improved, in some cases remarkably, in its ability to manage suppliers after they have awarded them a contract.

Relationships between suppliers and government have got better which, in turn, have delivered a step-change in performance and increased savings. The public sector’s levels of capability have improved and commercial functions recognize the power they have over what the organization spends.

Supply chain innovation

At the same time, the focus on savings shouldn’t come at the expense of other areas of value. The economist, Paul Geroski, wrote in his 2003 book ‘The Evolution of New Markets’ that real new opportunities for businesses come through innovations in the supply chain.

In particular, if organizations aren’t engaged in different marketplaces they won’t spot the major shifts such as disruptive technology. Focusing on how markets evolve can significantly shape both the business and the market.

For example, in the Crossrail project to create a high frequency and high capacity rail network serving London and the South East of England, the commercial function set up a supplier intelligence network during which the organization hosted supplier days and exchanged information, and suppliers had a point of contact to understand what Crossrail was trying to achieve.

In turn, suppliers could give constructive feedback to category managers which enabled Crossrail to work more effectively.

A similar approach was adopted at TfL during my time there, in which the organization is clear with its suppliers about its pipeline of work, overall context of its goals and where any specific contract suppliers are bidding for fits within that context.

Plans may change but suppliers have the context to understand the organization at a strategic, high level.

They are better prepared.
 

In the second part of this article on public sector procurement, Andy Quincey discusses the challenges of public sector supplier performance management.

To find out more about managing supplier relationships in the public sector, please contact James Cunningham using the details below.