Should procurement go beyond value for money? A confession

“When events change, I change my mind. What do you do”?

It was either John Maynard Keynes or Paul Samuelson (another famous economist) who first said this – there is some confusion about the attribution. But we still tend to feel uneasy when we have to admit that we’ve changed our mind – is it a sign of strength – or weakness?

Whatever it is, today I’m confessing.

I’ve always believed that procurement should stick as much as humanly possible to a basic goal – getting the best value goods and services for our organisation.  So I’ve never been a great fan of the wider “policy” goals that people have wanted to pin onto procurement (in the public sector particularly but not exclusively). Using procurement to promote small or minority owned firms, apprenticeships, equalities; it always seemed to me that it ran the risk of getting away from the basic goal of the profession.

That’s not to say I’ve been a total cynic. I did a lot of work with OGC in Government on the SME issue and as we wrote at some length here a while ago, just demolishing the barriers for SMEs and being open to what they can offer would move most organisations closer to real value for money outcomes. And many of the issues around sustainability make perfect sense from an economic point of view as well as having that policy angle.

But I’ve always felt that we should usually wait until our organisations wanted change, rather than procurement taking a particularly proactive or leading role in these issues – for two main reasons. Firstly, it can just be a huge distraction from those basic tasks of making sure we have the right goods and services, at the right time, place and provided in a value for money manner. That is a tough enough task for most procurement functions. And secondly, as soon as you introduce major elements of subjectivity into the procurement process, which these other goals tend to do, the danger of fraud and corruption increases dramatically.

But... various events, discussions and thoughts over the last few weeks have led to my views shiifting.  One was talking to Jason Busch and other senior procurement friends last week. I saw strong consensus that issues that have come to the fore this year, in terms of supply chain risk, economic turmoil, and some fundamental questions about the capitalist system, aren’t temporary phenomena, but are going to affect us for years to come.

I was also horrified by the figures around top directors paying themselves 49% more this year compared to last, while “normal” people in public and private sector I know are being faced by wage freezes or worse, and having pensions slashed or more contributions demanded. And the more you look at the growth in inequality over the last ten years in particular, the more it feels like something is broken at a fundamental level.  And David Smith, our new CIPS President, and his presidential theme (which we featured here) got me thinking and was another contributor to this mind-shift.

And while this whole topic is not public sector specific, it’s also clear that the chances of the EU collapsing, or at least some countries leaving (including the UK) have increased hugely – which might mean considerably more freedom for the public sector from procurement rules and regulations. So what about some previously unthinkable ideas that might now be possible if and when EU regulations no longer apply?

So I am increasingly convinced that the time is right for procurement to take on more actively a whole range of issues that go well beyond traditional “value”. And we need to do that very quickly, seriously and directly. We need to get onto the front foot.

More next week when we’ll explain exactly what we mean...

Voices (8)

  1. Chris Chapman:

    SME’s and apprenticeships – depends if you are taking a long term view on savings. From my experience, investing in a supplier pays dividends in the longer term, eg supporting SME’s to grow and provide both better competition in the marketplace and preferred customer status when times get hard. It also allows a supplier to be become more tailored to your specific requirements providing, as a general rule, that you do not exceed 30% of his turnover.

  2. life:

    This all depends on whether you are doing something in alignment with business strategy, with agreement, or whether you are acting on your own moral imperative. I’m not sure as to what you are confessing here, but I think it does make a big difference.

    If it’s the former, fill your boots, but are you really acting morally or doing anything different from normal?

    If the latter, however worthy the cause, you are actually acting immorally and beyond your authority or role. What if the HR guy or gal starts unilaterally recruiting poor people to redistribute wealth, or the accountant starts overpaying a little here or there to those that really do deserve it? Isn’t it the same if you start targeting different metrics rather than value for money because of your own moral view, given that it’s not mandated by management and in particular the shareholders (or executive in the case of Government)? If you are consciously not achieving optimum value for money to the best of your ability aren’t you short changing people who trust you in the same way?

    It’s a depressing shame but the options seem to be: get lucky and find yourself working in an organisation in which you are wholehearted agreement with the ethical stance; move to one that fits the bill (if you can find one), start your own business (and then start compromising on your own terms); or change jobs / vocation… Doing it on your own to effect change from within might be some sort of a way forward, but these sorts of things rarely end up well except in Westerns, and even then there’s plenty of blood to be spilt along the way….

    1. bitter and twisted:

      Youve set up a false dichotomy between just counting the beans and going bonkers maverick.

      And any complicated procurement decision is already riddled with subjectivity.

      So, go ahead and include “other” criteria in your bid analysis.

      Let your boss be the Bad Guy who ignores it. Thats what theyre paid for.

      1. life:

        I very much like “bonkers maverick” as a comment (!), but you’ll need to explain please why I’m barking up the wrong tree on this one. I’m not saying you go right out there on a limb in terms of scale or frequency, it’s just that this is a moral issue and even if you don’t achieve the sum total of £10 value that you would have done if you’d been keeping to mandated company strategy, isn’t it just like underbilling the supplier by a tenner, or pocketing a £10 out of petty cash and giving it to charity? And, morally, isn’t it you that’s getting damaged, and not your boss?

        I do think I might be misunderstanding Peter’s original comment, or at least the scale and seriousness of it, but upon re-reading a couple of other thoughts popped up that probably make my response much worse in terms of your objections, and almost certainly take the whole thing too far:

        1) Especially in light of the recent cases (Lettings International vs Newham etc), by not declaring the “other” criteria you would also of course be in breach of (public) procurement regs by not disclosing the criteria;

        2) Because this is procurement, and not payments or some “bonkers” HR Director, the financial damage done actually could be far worse.

        I think your subjectivity point is true, but that is probably why procurement is there, same as the legal system more generally. It’s partly there to protect us from ourselves.

  3. Final Furlong:

    How long, the road to enlightenment….

  4. bitter and twisted:

    Thing is, Pete, what do you really mean by ‘procurement’ ?

    Surely it either means

    a) You, dear reader, – purchaser X in company Y
    or
    b) the Fact Of Life that Organisations Have To Buy Stuff

    Any other meaning is waffle.

    So, putting these two meanings back into your piece, the answer is
    “Dur, Obviously Yes”.

  5. dave henshall:

    Well Peter, I am pleased to see your views changing on this one. If CPO’s wait for the organisation to want change – they will wait forever. Nobody likes it and nobody want’s it – unless they are confronted with a compelling reason to embrace it.
    So, who will argue for a wider more strategic role for procurement – if not procurement itself? We need more “Brave CPO’s” prepared to take risk and champion procurements case. Otherwise the door to a more strategic role will remain firmly shut:

    http://purchasingpractice.com/the-brave-cpo/

  6. huhh?:

    And if you want to see something scary, see a documentary called ‘The Flaw’ – it’s quite an indictment of pure capitalist ways (US style). One of the scariest stats was the income distribution at the top of US society – the top 1% of the income scale’s total income is rising faster than any time in history – something like 1.5 trillion dollars extra has made it up to the top 1% of income earners. And all those on median income levels have seen a total decline in income to the tune of the same… Revolution anybody?

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