Procurement

Commentary

By Christopher Browne MCIPS, Director, Commercial Solutions Branch, Ministry of Economic Development

There are more opportunities for savings through improved management of third party spend than in making the Procurement function itself more efficient. The total third party spend across the 31 measured agencies for FY 2010/11 is $11.697 billion. Mature Procurement functions typically demonstrate value by achieving tangible cost savings each year on third party spend, which are often three times the cost of running the Procurement function.[38]

Over the past twelve months, there has been a positive shift in the mindset of public servants regarding the value of mature procurement practices. The Government Procurement Reform Programme is now over two years old. Despite some initial reservations, agencies are starting to understand the benefits of rethinking their procurement practices and investing in procurement capacity and capability.

As agencies change their approach, we can see a more collaborative, coherent State sector procurement function in New Zealand. The first six all-of-government (AoG) contracts have been negotiated, and with these contracts come the potential to save a total of $293 million over their terms.

We can see new levels of investment in procurement capability, practices, and collaboration. We need professionally trained people working with the right tools to deliver an efficient procurement function that reflects international best practice. Agencies are using the New Zealand Procurement Academy to up-skill their procurement staff. The Academy has been in operation for over a year and provides general and specialist procurement-training (non-assessed) and study-support (including subsidies) to State sector procurers.

At the end of September 2011, the Academy had 96 current students progressing Membership of the Chartered Institute of Purchasing and Supply (MCIPS) qualifications. The Academy also offers 25 unique training courses including the two-day foundation course 'Mastering Procurement’. To date, 294 participants from 89 different organisations have attended this training.

The first six AoG contracts are in place with over half of the 219 agencies participating in these contracts. Following requests for participation, these AoG contracts have been extended to 2500 schools and 68 councils, and some have taken the opportunity to participate.

This benchmarking report shows some of the impact of this recent investment, but many of the benefits may not appear in benchmarking results until our next reporting period. It is likely that Procurement function reported spending will increase because of greater investment in this function and because agencies are getting better at capturing the cost of procurement activity.

A significant challenge for the Procurement function is eliminating red tape. There is a pervasive myth that the centre creates red tape. In truth, central procurement rules and guidance are short, simple, and leading practice. As agencies adopt these rules, some add on their own, agency-based requirements adding low value activities, delay, and frustration for both suppliers and public servants. We need to challenge these wasteful practices. In part, these practices continue because we don't measure or understand the impact they have on our organisations' efficiency. As an informal and devolved function in most organisations, procurement continues to be one of the hardest to measure. This makes it hard for agencies to quantify the benefits of eliminating such things as multiple signatures on low-value spending and work-intensive paper-based procurement processes prone to human error and rework.

The Procurement Reform Programme continues to support improvements across government. Work has started on developing and introducing AoG contracts across new product/service categories: Travel Management Services, Electricity and Energy Management Services, Recruitment Services, Mobile Voice & Data and Media Buying.

Approximately 10 new syndicated contracts are in various stages of development for a range of goods and services including fuel, furniture, project management training, and media monitoring.

The Procurement Reform Programme has launched the first Government Model Conditions of contract. These have plain English legal terms and will reduce legal costs for both agencies and businesses.

The Procurement Reform Programme is developing a standard simpler Request for Proposal (RFP) for application across all government tenders, and a major effort to rationalise procurement policy has started.

The major opportunities for improvement are the same as those identified in the April 2011 BASS report. The following five steps can strengthen the efficiency and effectiveness of Procurement functions across the sector:

• Empower the Procurement function to play a more strategic role. Across most agencies, third party spend is managed in a fragmented and reactive manner. In these times of fiscal constraint, the Procurement function should focus on a thorough analysis of organisational spend. We need to be clear about what our money is being spent on and with whom, and identify patterns for possible consolidation or challenge. Procurers can then identify opportunities to improve performance. Procurement strategies should be differentiated based on a mixture of total expenditure, the business risk to the agency, and the degree of influence the agency has with its suppliers.
• Increase procurement capacity and capability. Agencies need to take advantage of the investment Government has made in building the capacity and capability of procurers by reducing their reliance on contractors. It is also clear that a lot of procurement is undertaken by non-procurement staff. Given these staff can spend large sums of money, they require appropriate commercial training.
• Improve procurement management information. Comprehensive, accurate, and timely management information enables agencies to focus procurement and management resources where they can have the biggest impact on the value of third party spend. Without a thorough understanding of information about how much is being spent, with whom, and for what purpose, Procurement function performance will always be limited.
• Undertake a cross-agency review of the procure-to-pay (P2P) process. Agencies are likely to benefit from standardising, streamlining, and automating activities within the P2P process. A review of the P2P process would help uncover specific opportunities and enablers for driving process efficiency. A simple example of this is increasing the use of purchasing cards for low value purchases.
• Increase collaboration across the sector. Agencies typically collaborate for procurement in three ways. First, leveraging scale by aggregating buying power can drive cost savings in common spending areas. Syndicated contracts and all-of-government contracts have the potential to deliver significant cost savings. Second, agencies can standardise procurement systems, processes, templates, and tools. Third, agencies can leverage knowledge. There is currently demand, from small agencies in particular, to share access to specialist procurement resources. All too often agencies use contractors to augment their procurement resources, limiting the development of institutional knowledge within agencies.