Procurement seeks the path to peak performance

Thursday, August 16, 2007

Staffordshire’s head of purchasing Ian Simpson tells Claire Millington how the county council is reaping the rewards of its shake-up of procurement

“If there was nothing sexy about procurement I wouldn’t be doing it,” says Ian Simpson, head of purchasing for Staffordshire County Council, where procurement has been turned round in the past four years since receiving Audit Commission criticism. Simpson says it will meet the 3 per cent savings required by the government and cope with the increasing pressures to find efficiencies. So how has Staffordshire achieved this?

In line with the 2003 national procurement strategy, the council created a new role of head of corporate procurement, bringing in Gerry McCormack from Boots to drive change. As Simpson explains, this shake-up saw the council centralise purchasing across most directorates, “including areas such as service provision and PFI that traditionally were not seen as procurement. By centralising procurement the council can ensure sound procedures are in place and benefit from greater economies of scale. For example in 2004/05 we saved in excess of £5m.” The first thing the revamped department did was to produce a purchasing methodology, defining cashable and non-cashable savings, “essentially how to do the same for less and how to do more for the same,” says Simpson. “This methodology has been shared with more than 50 other local authorities.”

Key to successful strategic procurement is understanding the markets you are in and their main players. In Staffordshire’s case, Simpson explains, the spend on non-pay procurement is £380m a year, and 59 per cent of its providers are West Midlands based. To have a proper choice of tenders a thriving local small and medium enterprise sector is vital. “The council seeks to be the customer of choice for suppliers,” says Simpson, noting that his team works closely with the council’s economic development unit. Cutting down excessive documentation helps local SMEs bid, as does publicising details of upcoming contracts, alongside contact names and numbers and timescales on the council website.

Similarly with tendering procedures, the team used to ask suppliers for information that they then did not use. So they drew up a “tender toolkit” to ensure procedures were proportionate to the risk and value of contracts. As Simpson puts it: “We want to measure what we value and value what we measure. On a £30m highways maintenance contract we will ask for information about health and safety and equal opportunities. On a £50,000 fruit and vegetables contract that much detail is inappropriate.”

Achieving quality and value for money often means considering costs accrued over a purchase’s lifetime rather than just the initial outlay. They seek to persuade colleagues that making separate purchasing arrangements may seem cheaper but ignores quality and hidden costs such as staff time, though Simpson points out: “The cost of doing something must be outweighed by the value of doing it.” With low risk, low value contracts like office supplies, individual council offices now order direct from the contracted supplier without involving the purchasing directorate. Reducing bureaucracy saves money and frees purchasing staff to manage higher risk and higher value contracts.

Further complexities are ever-tightening environmental requirements. Simpson admits: “More is needed than the current approach of buying only recycled paper and energy saving light bulbs. We are working on a sustainable procurement policy covering for example, food miles, delivery points and frequencies, and supplier location.” He says part of the answer lies in taking into greater account purchasing lifetimes and looking for efficiencies through using renewable energy.

Having made these radical changes, how will the council cope with future demands for efficiency savings? “Changing towards being risk aware rather than risk averse is important. Previously suppliers were expected to carry all the risk and that naturally resulted in higher prices for the council,” says Simpson. “Now we evaluate what the risks are and then decide if we want to carry some or all of them.”

Moving from “outdated adversarial relationships” with suppliers to a partnership approach will continue to bring savings. “Improving relationships means we can ask how to get a better price – it can be as simple as making sure we don’t request non-standard sizes.” Asking suppliers to offer efficiency solutions also means more than enforcing obligatory contractual clauses. “If the relationship is working well the contract can practically be put away in a drawer.” The aim is a level of profit acceptable both to the supplier and the council.

The need to better disseminate learning was one of the points initially criticised by the Audit Commission and Simpson acknowledges that procurement is a continuous learning process. The council now works with the West Midlands Centres of Excellence to share expertise and experience. Key contracts are reviewed post tender to learn lessons for the future and procurement staff draw on a wide range of experience from the public and private sector.