Hughes and Day on Transforming Public Procurement, part 3 – “Options”

This is the third section of the Hughes and Day report and is perhaps the heart of it. (You can read our comments on sections 1 and 2 here and here).  In this section, Hughes and Day look at the various options-  the drivers if you like – to achieve better value. It’s full of good ideas and content, and we’d suggest it is useful and interesting reading for private sector professionals as well as public sector procurement people.

The authors look at a 3 x 3 matrix which considers ideas and actions grouped around Price Structures, Cost Structures and Commercial Structures.  So, the first cluster of options "concentrates primarily on price management as a relatively easy starting point on the journey.”

Within this section, we have price benchmarking and levelling, contract re-negotiation,  and (getting more sophisticated) what the authors define as “price and contract innovation” – looking at options such as value-based pricing, risk transfer or similar. The DWP welfare to work programme is a good example of this in action.

The next cluster – Cost Structures – take us into looking at the underlying cost drivers. That includes specification rationalisation - an area I personally think has huge potential for the public sector which has a tendency to over-design and be very risk averse in its specification of goods and services.

Then we have “supplier value management” which goes into post-procurement phase. It is a “massive capability gap” – again, I would agree, and having carried out some substantial work for National Audit Office and OGC back in 2007 and produced a good practice framework, it is disappointing to observe that there hasn’t been much systemic improvement around the public sector since then.

Finally, for this section, Hughes and Day talk about re-engineering supply chains, where they get into the thorny issue of PFI, with some interesting ideas around modularising projects and supply chain transparency for instance.

Their third cluster is called “Commercial Structures” and takes us into the beginnings of the “how” this might all be delivered. The cluster includes aggregation and shared services, where we are seeing some progress in the public sector already; outsourcing (by which they mean general outsourcing, not specifically outsourcing of procurement activity), and “new service delivery models”(commissioning, JVs etc).

As we started by saying, independent of anything the public sector might actually do as a result of this report, the methodology here with these nine topics is very applicable to anyone, public or private sector. It forms a very robust map of how you might consider and structure the whole range of value activities that procurement can undertake.

As well as all of the above, the Options section includes some thinking about the workstreams and the change plan that would be needed to drive change. There’s substantial content in that as well, but we’ll come back to that after we’ve finished going through each of the 6 sections - the whole implementation issue deserves some serious comment in its own right.

So more next time on section 4 – “structures”. And you can download the report here.

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