Public Sector Procurement is NOT like Tesco

I said we’d come back to the PASC (UK government’s Public Administration Select Committee) debate we covered last week and in particular Colin Cram’s idea about a single centralised procurement function for public procurement. What worries me – hence these pieces which are somewhat more forthright than my normal style perhaps – is that Cram may be seen as the voice of the procurement profession in some sense, with his PASC appearance and columns on the Guardian website. That’s a worry, when in this case I’m sure his views align with only a tiny fraction of the procurement community.

In part 2, we’ll look at the many reasons why this centralisation would be a bad idea and why it can’t possibly work. But today I want to explode Cram’s “Tesco” hypothesis. He wrote a paper “Towards Tesco – improving public sector procurement” in 2010, supported by the Institute of Directors (and I do admire his ability to get people like that involved). It got various un-informed folk excited around the idea that government could do procurement better if it behaved more like Tesco. That thinking then leads into his ideas about centralised public procurement.

So let’s give four reasons (there are probably more) why the public sector is NOT, I repeat, NOT like Tesco.

Mission

Tesco’s mission is to make profit for its shareholders. I’m one of them, have been for 20 years, and they’ve done  a great job for me. One of my better buys. They do not have to worry about caring for the sick or disadvantaged, providing a basic standard of living for the citizen, generating national economic wealth ( and happiness?), protecting the nation, providing educational and health services, keeping our persons and property save from wrongdoers... They have no wider responsibilities to their suppliers other than what maximises their long term shareholder value, and that is how it should be. It seems obvious that this fundamental contrast leads to some major differences in how procurement has to be undertaken by the public sector compared to Tesco.

Uniformity

Tesco runs lots of shops. Some are big, some are small. But they are basically all the same. They can all use the same suppliers for many goods and services, and indeed the same specifications. There is one set of IT systems because there is one set of shops.  Contrast that with a single small local authority (council), which on its own is a more complex “business” in terms of what it does, by a significant factor, than Tesco’s entire organisation. A council runs what are effectively businesses in leisure, in retail, in care services, in transport... it also buys everything from tree surgery to taxi services, from books to foster care services.

Now that’s just councils. When we look at the commonalty or standardisation across different parts of the public sector, the comparison with Tesco breaks down even further. We’ve also got police forces, hospitals, schools, central Departments, universities... what is the commonality between a school in rural Northumberland, a large hospital in London, the British Waterways Board, the SAS (military heroes) and Devon Police? How standardised are their requirements and how much commonality is there across that supply base?

Control

Ultimately, Philip Clarke (Tesco CEO) can sack a store manager who says “I want to buy my own deep freezes and energy for my store”. Of course the whole idea is crazy because of the very standardisation we’ve discussed. On the public sector side, Francis Maude or even Prime Minister  David Cameron cannot fire;

  • A Foundation Trust (hospital etc) Chief Executive
  • A Police Commissioner or even Chief Constable
  • A Council Leader or Council Chief Executive
  • A headmaster

They even struggle to fire senior civil servants as we’re seeing in the case of Transport and the West Coast Rail incident.  There’s no central power that can demand  compliance, there is no mandate. And in fact these public bodies are increasingly competitors as the coalition government tries to encourage that between hospitals, schools. So apart from anything else, Cram’s ideas run counter to the whole political philosophy of this age.

Size

We tend to think Tesco is big but it pales into insignificance compared to the public sector.  Tesco probably spend s few million in legal fees or consulting, maybe even into the tens of millions. The public sector spends billions just on professional services. Tesco’s IT spend? Less than HMRC or DWP, I’d bet, who are themselves just a fraction of total public sector spend. Another invalid comparator.

So repeat after me. The public sector is not “just like Tesco”, never will be and shouldn’t be. That’s not to say public procurement can’t learn something from the best in the private sector. Of course it can. But Cram’s comparison is facile and immediately sets us off on that illogical and ill-founded route that leads to the crazy “centralise public procurement” argument – which we’ll come back to later.

Voices (12)

  1. Mark Pedlingham:

    Having spent as long as anybody on this matter (Procurement reform in the MOD was launched in 2002/3 bringing category management to a major department for the first time, successfully I might add) I am afraid there are no quick answers and no silver bullets – this is not Defeatism, simply Realism. The path that the Departmental Commercial / Procurement Directors set out on in the ‘mid noughties’, following Peter Gershon’s first review, was the right one – a blend of local and national deals that would be made available for all to use – if it was the Demanders best route to market. Whether a deal was National or Local depended on the Category and the nature of the market, however big was not always beautiful and some of the procurement actions got themselves tied up in knots (trying to agree requirements – for instance) with progress so slow that the bigger Departments could not wait. Progress was also delayed by the lack of spend data and even agreement across the profession as to the form of categorisation that would best be used. And, of course, no one had any spare resource to throw at the problem, as belts were being tightened and manpower numbers restricted.

    Peter is right that Tescos’ model is much too simple for most things, but Colin is also right that pencil is a pencil and that it will have its place for some commodities and services. So back to a no one size fits all and a lot of focussed graft, organised centrally, but recognising Departmental sovereignty born of the responsibility of Cabinet Government and Permanent Secretaries responsibilities (and other similar models for other Agencies and Bodies) to Parliament. One final comment on where the ‘control’ should lie (and by control I mean the money). First it will remain with Departments to decide how to spend their funds, so I cannot see them passing money across to any central body to spend on their behalf (hence the ‘provide good commercial vehicles which can then be used’ model) – do we all remember the PSA? Secondly that demand management is the key for reduced costs to lead to savings – experience taught me that half price laptops did not necessarily create a bottom line saving, particularly in the current resource constrained state. A Demander simply bought twice as many – as even this did not match their real need!

  2. Gerard Chick:

    I think Peter makes some very good points, and public sector procurement can never be like Tesco or any other body driven by the profit motive as he articulated in his piece. I also feel that there are issues around “supply chain justice” for example the way relationships are built and managed by FMCGs (in particular) which could not happen in the private sector. Finally McKinsey argue that Big Data is the next frontier for innovation, competition, and productivity see (http://www.mckinsey.com/insights/mgi/research/technology_and_innovation/big_data_the_next_frontier_for_innovation) and that he developed economies of Europe, government administrators could save more than €100 billion ($149 billion) in operational efficiency improvements alone by using big data, not including using big data to reduce fraud and errors and boost the collection of tax revenues.

    So rather than copying the traits and practices of an organisation or sector which has different drivers, remit and policies to those of the Public Sector (that is not to say that there are no analogues in the private sector for the public sector to learn from – think social security payments and the payment of insurance claims) why not look at the unique nature of the UK Public Sector and examine the aspirations and capabilities within to improve execution of its role. Increased productivity beats efficiency any day in my reading of “paper stone scissors”

  3. Dan:

    Colin: how do you deal with the principle of democracy/accountability in local government procurement i.e. a Council should be responsible for its procurement to its local electorate rather than central government? Is centralisation really desirable in this sector?

    1. Sam Unkim:

      Hi Dan

      Surely the local accountability would be retained in “what & why” are your councils buying it.

      With the “where” being controlled at a higher level

      1. Dan:

        But “where” is just as important (possibly more important) as “what and why” – the electorate want to see that money spent in the local economy wherever possible.

        1. Planbee:

          Do they, are you sure? A lovely woolly idea but any proof for that statement?

          Given the choice between lower council tax or spending local, I wonder what most voters would go for?

  4. bitter and twisted:

    Waitrose

  5. colin cram:

    Peter, you are sounding like the voice of doom. It’s too difficult, so let’s pretend we can solve the the weaknesses and the the faiIings by ignoring them. Successive governments have spent hundreds of £million over the years trying to prop up a broken model. Perhaps some of that could have been spent on hospitals or transport infrastructure. There is a desperate need for decent roads across the Pennines. I am only too well aware how complex the public sector is having worked throughout it. I am therefore aware, more than you, of the serious weaknesses and waste. I am also aware of the huge commonalities. I am only too well aware of constitutional issues, having created joint organisations and manoevered my way through these issues. Therefore I am not proposing that the government can suddenly wield a big stick, and never have. My approach is to build on what is best – and there are some great examples. So you seem to be criticising things that I am not proposing. Public sector procurement spend is something like 8 times that of Tesco, so there is some form of comparability. However, public sector procurement costs each person (adult and child) in the UK an average of £3500 a year. It is one sixth of our GDP. So the people who pay this huge amount of money each year have a right to expect that it delivers: best value overall, supports economic growth, consistently great management of major contracts and projects, government policies and programmes, great and consistent customer service, long term world class capability, assurance and accountability, national security of supplies and effective Parliamentary oversight and scrutiny. I look forward to your solution.

  6. Trevor Black:

    Peter, I am in total agreement. I am however concerned that those who rule over us and have no concept of business either in the public or private sectors can be too easily influenced with some of the illogical arguments. I suppose it’s an improvement from taking advice from ‘celebrity’ experts from ‘Dragons Den’ or ‘The Apprentice’ and even more so from those entrepreneurs who despite being successful pay less tax than their cleaners. What is missing at the heart of this debate is that there is an absence of commercial common sense at the heart of government and anyone with the power to stand up to Ministers and to point out that some of their schemes are unworkable and just barking mad.

  7. Stephen Heard:

    I know both Colin and Peter during my time at OGC Buying Solutions as was and like all discussions I can see both sides of the argument. The centralised argument surely works for basic commodities a pencil is a pencil wherever you work. If the UK public sector just collaborated on these basis staple items it would surely help.

    And whilst the Tesco argument does not stack up for the whole public sector then surely it does for health (I’m now doing some work in the NHS), local government etc. After all the MOD (I used to be in the RAF) has standard specs for equipment so why not in other parts of the public sector.

    So we should have Tesco’s for health (as advocated by Roy Lilley in his splendid nhsManagers.net blog) and a Morrisons for education, Sainsburys for local government. You get the picture.

    But then again didn’t we have that with PASA and Firebuy and look what happened there. Surely the key to all of this is successful behavoural change of cultures and working practices that have been in place for centuries and a lot longer than Tesco. I know, as someone who has been trying to advocate these type of changes, how difficult this can be and almost impossible without some sort of mandate. I know that in my time in the private sector that I had to buy from a Head Office approved supply list or my job would be on the line. Why doesn’t that apply in the UK public sector? Discuss

  8. Paul Wright:

    Peter, I agree. One more thing is Ethics – and the appearence of ethics. If I decide to have the roof of my office checked by my brother in law (who actually does such things for Tesco) then that is up to me. If I was at Tesco there would not doubt be checks to make sure I was not actually involved, or that the decision was robust. In the public sector it would be a potential scandal regardless of criminality. Which is why there are so many tender processes.

    As you said, Tesco just has to make money – government has to do so much more.

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