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What is the Future of Public Sector Procurement?

Public sector procurement has recently made headlines, in the UK at least, as it works its way up the agenda. The coalition government has committed it...

Freddie Pierce
|Aug 27|magazine11 min read

Public sector procurement has recently made headlines, in the UK at least, as it works its way up the agenda. The coalition government has committed itself to huge cost savings in a bid to reduce the budget deficit. While there has been speculation that outsourcing public sector services will result in job losses, there is another side to outsourced procurement in the public sector. For smaller suppliers, it could pose a huge opportunity.

Roger West, Global Head of Outsourced Procurement at DHL, believes that there are increasing opportunities in the public sector.

“We have been talking to various government departments about how we think procurement can be done differently or better, particularly under the new government, and with the current financial constraints,” he says. “There’s a huge emphasis on saving money at the moment, which is great for procurement because that’s what we’re supposed to do.”

The move to outsourcing public sector services could result in more collaboration between the private and public sector. Capgemini Procurement Services’ (formerly IBX) UK Director, Mark Masterson, has observed that UK public sector bodies tend to operate autonomously and believes they could learn some lessons from successful private sector outsourcing. “We know there are huge opportunities for public sector to get benefits out of this. They should perhaps look at some of the great cases in the private sector and focus on what they can do that’s the same, rather than what’s different,” Masterson explains.

Extracting value
One example of a public sector outsourcing strategy that has worked is the NHS Supply Chain. The Department of Health began a process to outsource the supply chain of products in the NHS which resulted in DHL starting the contract in October 2006.

One aim was to bring more commercial practice to the procurement of products in the NHS in order to secure benefits of £1 billion. As part of the evolution of procurement capability within NHSSC, a Value Acceleration programme was implemented at the start of 2009. “The programme built on the transformation work since the start of the contract but introduced some new tools to deliver even more benefit,” he says. Last year, DHL carried out 54 online auctions for the NHS. “On top of the submitted bids the auction process delivered over 16 percent further savings value that would otherwise have been missed,” he claims.

Another strategy the company used to extract more value was to take parties out of the supply chain, by buying directly from manufactures rather than
from distributors.

Creating value is a significant part of procurement. Masterson recognizes that it’s about creating a structure that delivers more value than can be achieved internally. “For organizations thinking about outsourcing, they should not be focusing on cost per unit head count and cost per transaction, but how they can put something in place that drives up the overall value of what’s delivered.”

Winners and losers?
There is a belief in some quarters that it is the smaller suppliers who could potentially lose out from public sector outsourcing, as they are overlooked in favor of large manufacturers. West believes that it does not have to be the case, explaining that in the food supply chain there are ways to incorporate smaller manufacturers, and local farmers and food producers into the supply chain. He cites DHL’s virtual farmers’ market concept as one such solution. However, it might take more than this to satisfy small suppliers that there is still a place for them in the public sector supply chain.

Capgemini has a strong footprint in the public sector market. Its Procurement Services division has been working with the Norwegian government since 2004 on a central platform for the whole of the Norwegian public sector. “What we’ve got there now is an infrastructure designed to be available for every single public sector entity,” says Masterson.

He admits that establishing this platform and the technology behind it has been challenging but believes that what the country now has is a highly flexible infrastructure. “The key was to get common standards and processes across everything, as we know this is where a lot of the value comes from,” he adds.

Capgemini achieved something similar in Scotland. “We’re now working on producing a combined platform taking the best of what we’ve achieved in Scotland and what we’ve achieved in Norway to the whole global public sector market,” Masterson explains.

With public sector procurement set for a shake-up in the coming months, the industry is likely to adopt alternative tools and technologies. Collaboration with the private sector could also help the public sector achieve savings in outsourced procurement.