Network Rail to boost procurement efficiency? Or just reduce procurement numbers?

Perhaps it is something about the air in Farringdon, but you have to love the optimism that abounds in the Supply Management journalistic team.  (I’m not being sarcastic here by the way – well, not completely)!

One manifestation is the way projected savings get reported – it is always “company X announces £50 million to be saved from procurement initiative”, rather than “hope to save” or “may save”. And certainly never, “if we get stakeholder sign-up, the new P2P system finally works, the CFO lets us recruit 10 more category managers, and markets move in the right direction, then we may be able to claim £50M using our somewhat dodgy savings methodology”, which is usually the truth of these things.

But I thought last week was an even better example of this lovely positivity.

“Network Rail to boost procurement efficiency” was the big headline. Sounds great, doesn’t it?

When we got into the detail, it concerned the new Network Rail five year plan, covering 2014-19. That showed the running costs of procurement reducing from £10.8 million in 2014 to £7.8 million in 2019 – a nominal reduction of 28%, but allowing for a bit of inflation, more like a 40% real reduction in running costs. Now that’s not altogether surprising. We’re seeing, or will see, similar reductions in running cost required in many parts of the public sector, including in procurement functions.

Network Rail say they will achieve this by improving processes, technology and boosting skills  - hence the “procurement efficiency” comment. But let’s face it, whether or not these initiatives work, I suspect those cost reductions will have to happen. Imagine Ian Sexton, director of contracts and procurement at Network Rail, goes back to his boss and says “the efficiency ideas didn’t work, can I keep all my staff please”?  I think we know what the answer will be.

So, “Network Rail to reduce procurement running costs by 40%, hope to maintain performance levels by greater efficiency ”, would be the more realistic headline.

And of course the big prize is how procurement can contribute to efficiency and value improvement across the billions of pounds of third party spend that Network Rail incurs. There’s a wider cost reduction target of £1.1 billion, some 20% of costs.  Now, in an ideal world, we might have hoped that the Network Rail Board would look at that and think, “to make those savings, we must invest more in the procurement function, because the return will be at least 5 to 1 in terms of the savings they can make on our external spend, versus their own costs”.

But no, procurement has just been treated like any other central function, in fact the cuts are higher than in some other areas. Which suggests this is another organisation where unfortunately the argument about procurement value hasn’t been won. And that’s despite a lot of talented procurement people working in it now and over the years.

Anyway, thanks to Supply Management for making me smile...

Voices (3)

  1. bitter and twisted:

    Shouldnt we expect more than this lazy pass-the-PR-parcel pseudojournalism form the ‘premier global organisation serving the procurement and supply profession’ ??

    1. Sam Unkim:

      2013’s comment of the year ( so far )

  2. PlanBee:

    Gotta love the spin…..should be

    ‘Network Rail to face 40% redundancy’

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