Transcript Presentation, PSR, 14/12/11 - 8th Public Administration

International Centre for Parliamentary Studies
“International Public Sector Reform Symposium”,
13th & 14th December 2011, London
Improving Procurement Practices to Improve
Service Delivery in Challenging Times
www.deficit-reduction.com
www.futurepurchasing.com
Jon Hughes
Dr. Marc Day
Chairman, Future Purchasing &
Visiting Fellow, Henley Business School
[email protected]
Professor of Strategy & Operations Management
Henley Business School, University of Reading
[email protected]
© Copyright 2011, Future Purchasing & Henley Business School, University of Reading. All Rights Reserved.
Page 1
Our methodology, approach & ongoing analysis
of public sector procurement transformation
Phase 1: Q4, 2010
Analysis
Phase 2: Q1-3, 2011
Synthesis
• A decade of reports
• 110 departmental accounts
• 100 case studies
• Six value pillar structure
• Barriers to reform
• Practical recommendations
Jon Hughes
Chairman , Future Purchasing &
Visiting Fellow, Henley Business School
Phase 3: Q4, 2011
Dissemination
Phase 4: 2012+
Commentary &
Ongoing Analysis
• Dedicated micro site
• Conferences
• E-mails and bulletins
• Tracking progress
• Executive presentations
• Bi-monthly updates
Dr. Marc Day
Professor of Strategy & Operations Management
Henley Business School, University of Reading
Registration & free updates: www.deficit-reduction.com
© Copyright 2011, Future Purchasing & Henley Business School, University of Reading. All Rights Reserved.
Page 2
UK public sector procurement case study and
alignment with three key policy goals
1
Reduce the £109bn Structural Deficit by 2015 (and as per Autumn
Statement, by 2017). Stop borrowing 1 in 4 of every £ spent.
2
Rebalance the Economy and stimulate economic growth. State
spending as a % of GDP reduced from 48% to 40% by 2015.
3
Open up public services to greater choice and competition. Particularly
through SME access, entrepreneurialism & voluntary / social enterprises.
© Copyright 2011, Future Purchasing & Henley Business School, University of Reading. All Rights Reserved.
Page 3
Analysis of reports from Gershon to Green, NAO
& PAC, case studies & UK-wide spend data
Spend
5
10
15
20
25
30
£bn
Clinical and Medical
Professional Services
Construction
Facilities
Social Care
ICT Hardware and Software
Defence
Learning & Development
Temporary Staff
PFI Running Costs
Consulting
Vehicles
Operational Goods
Financial Advice
Travel & Events
• 15 mega-categories
account for 90% of £243bn
procurement spend.
• Does not include the
£267bn “black box” of PFI
liabilities.
Source: HM Treasury, Cabinet Office, ERG Spend Estimates
© Copyright 2011, Future Purchasing & Henley Business School, University of Reading. All Rights Reserved.
Page 4
Evaluation of the size of the spend, opportunities,
comparators and realistic assessment of it
Snapshot of the UK Public Sector Procurement Landscape
Size & Savings
Annual
UK GDP
Public Sector
Total Expenditure
Total External
Supplier Liabilities
Conventional
Procurement Spend
Private Finance
Initiative Liabilities
£1,473 bn
£632bn
£562bn
£243bn
£267bn
ERG Savings Goal
25%
McNulty Rail Target
35%
15% Cost Reduction,
Conventional Spend
£37bn
What it Equates To
Percentage of the
UK’s GDP
Annual Tax Per
UK Taxpayer
20%
£5,000
37 new hospitals and bed
space for 31,000 patients
8 capital projects the size of
Heathrow Terminal 5
700,000 middle management jobs
PFI
£267bn
• 650+ liabilities over 25 years
• Renegotiate & claw back
“National
disgrace”
Defence
£25bn
• £36bn black hole & over-runs
• Rebuild procurement
“Weak &
dysfunctional”
Health
£48bn
• Inadequate focus, CEOs down
• Chronic under-performance
“Too often
lamentable”
Local Govt • 28% front-loaded grant cuts
“Some good,
most not”
£51bn
• Redefine commercial structures
Education
£16bn
• Encourage new providers
• Need smart procurement
Others
£58bn
• Mandated aggregation
• Inject expertise & best practice
“Hard to
gauge”
Centre
£31bn
• Category aggregation
• Major projects & top suppliers
“Encouraging
start”
Welfare
£4bn
• Payment by results (PBR)
• Extend to other social policies
“Real
innovation”
© Copyright 2011, Future Purchasing & Henley Business School, University of Reading. All Rights Reserved.
“Devolved
& difficult”
Page 5
Framework 1: Major levers of change for UK
public procurement practice
1. Value
2. Spend
3. Options
4. Structures
5. Processes
6. People
Make it a
government
policy goal
All £500bn+ i.e.
annual and PFI
claw-back
Huge scope
tactically &
strategically
Not advocating
a centrist
model at all
Faster, better,
stronger best
practice
Top level
minister & CEO
leadership
Coalition of
ministers to
own it
Departmental
reform plans to
attack it
Three tracks:
price, cost &
commercial
Majority of
change is local
& regional
Category &
programme
management
All pivotal
professionals
who buy
£37bn delivery.
Scrutiny by
PAC, NAO, NED
Phase 1 to
2015 & Phase 2
to 2020
Quantum of
Structural
delivery reflects consolidation
sophistication
is essential
50% reduction
in bid time +
25%+ SMEs
Government
Procurement
Academy
© Copyright 2011, Future Purchasing & Henley Business School, University of Reading. All Rights Reserved.
Page 6
Framework 2: Improving procurement practices
across price, cost and commercial structures
Complex
Long Term
1.3 Price & Contract
Innovation
2.3 Re-engineering
Supply Chains
3.3 New Service
Delivery Models
25-40% cost reduction: breakthrough change, innovative commercial restructuring
Scale of
Change
Ways of
Working
1.2 Contract
Renegotiation
2.2 Supplier Value
Management
3.2 Outsourcing &
Redefinition of Services
Operating
Model
10-25% cost reduction: deeper change, value maximisation and service redefinition
Timescales
Financial
Benefits
1.1 Tactical
Renegotiation
2.1 Specification
Rationalisation
3.1 Aggregation &
Shared Services
5-15% cost reduction: through quick wins, specification changes and aggregation
Immediate
Fast Gains
“Price Structures”
“Cost Structures”
“Commercial Structures”
Renegotiating and Restructuring
Supplier Pricing and Contracts
Impacting the Cost Drivers and
Re-Engineering Supply Chains
Reconfiguring Organisational
and Operating Models
© Copyright 2011, Future Purchasing & Henley Business School, University of Reading. All Rights Reserved.
Page 7
Framework 3: Scale of change in improving
procurement practices and service delivery
Case Study Example:
Local Government Services
Radical Change
Incremental Change
1
Vertically integrated services with no external provision
2
Compulsory competitive tendering in narrow service categories
3
Performance managed by bids, tenders, contracts and SLAs
4
Application of category and supplier management processes
5
Cross-functional and cross-service commissioning teams
6
Centres of excellence for procurement and commissioning
7
Local and regional procurement hubs
8
Procurement consortia and shared services
9
An enabling council, with considerable outsourced service delivery
10
Merged council structures commissioning external services
© Copyright 2011, Future Purchasing & Henley Business School, University of Reading. All Rights Reserved.
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Do keep in touch via the Micro Site
Please download a complimentary copy
of the strategy, blueprint and action plan
for procurement reform:
Why Public Procurement is Central to
the UK’s Economic Performance .....
... and How to Transform It
A Strategy for Deficit Reduction, Service
Delivery and Economic Growth
Access it on:
www.deficit-reduction.com
or
www.futurepurchasing.com
Free updates are available every two
months, starting January 2012
Looking forward to future contact and dialogue through this Parliamentary term .... and even across the next one!
© Copyright 2011, Future Purchasing & Henley Business School, University of Reading. All Rights Reserved.
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