Now Royal Mail – when did ‘Procurement Director’ become a high-risk job?

For the second week running, a CPO was splashed across the Sunday papers.  Along with her CEO, Kath Harmeston of Royal Mail was featured in the Sunday Times in what looks suspiciously like "the Telegraph got the Serco scoop last week, let's have a go this week" piece.

Apparently Royal Mail got their top suppliers in a room and told then that they needed to take  20% out of the cost base. As the Sunday Times says (from behind their pay-wall of course):

Harmeston’s presentation, a copy of which has been seen by The Sunday Times, set out a scheme to “radically reduce costs and our spend baseline by the end of the financial year — a 20% minimum target reduction per key supplier”.

Am I supposed to be surprised?  Horrified?  Or cheer loudly?   We all know that Royal Mail is struggling, is potentially going to move at least partially into the private sector, is going through major cuts in its own headcount.  It would surely be more surprising if there wasn't a drive to take cost out of the third party spend?

And as far as we can tell from the report, this wasn't a demand for an immediate 20% price reduction; this sounds more like a sensible, "we're looking for ways of making major savings, what can you do to help us" approach. Although this was tempered with a pretty tight deadline for ideas; and "new contracts will be in place by December 10", according to the Times although frankly this loks like negotiating positioning by Royal Mail.  A message to suppliers - get a move on guys, in other words.

And of course ideas could cover a whole number of different options, not all of which are bad news for suppliers. We'll discuss here later this week what procurement organisations and suppliers should be looking to do in situations such as these.

The best bit of the story was this however. Suppliers said that they were "shocked" by the demand for tough cuts. As the Sunday Times reports:

“They gave us nice pastries and then hit us with this. People were furious,” one said.

Are there no depths to which these dastardly procurement people will not sink?  The inhuman fiends - how could they! Nice pastries! The horror! The horror!

All in all, not a real shocker then - but another indication of the focus we're going to see on public sector procurement over the next few difficult years of reducing spending.

Voices (3)

  1. Guy:

    Peter, surely you’ve missed the most amusing thing of this story and that’s the pot calling the kettle black. Last week the Government said you’ve got to be nice to suppliers, this week they (through the Post Office) are playing the tough guy. You can split hairs and say the Post Office is not the Government, but its a publicly owned body.

    On to the article, putting the tone of the request to one side, I’ve done similar exercises throughout my career. Done in the right way they put the gauntlet down to the supply base to meet the challenge and the right response from a supplier can be game changing in terms of that supplier’s relationship.

    In the last such exercise, most suppliers gave up with a few things, but one supplier made proposals that cut our costs in half, took business from their main rivals and gave them a prominence within the company that they had been struggling to achieve for years.

  2. David Atkinson:

    Hi Peter,

    Despite agreeing with much of what you say and indeed the tone of your piece, I still think (based on what you’re reporting) that Royal Mail have screwed this up.

    The clue is in the “new contracts will be in place by December 10″ statement. Jeez! How stupid can some organisations be? It has echoes of another unnamed British institution who, three years ago, issued a ‘5% Challenge’ to its suppliers and “by the way, can we have your commitments by 4 o’clock. Thanks.” (I’m paraphrasing, but you get my drift). That was a hopeless failure by the way, with the suppliers ignoring the ‘request’.

    Setting demanding goals for the supply chain is absolutely what procurement professionals should be doing. Back in the days when I was a procurement director at the currently-newsworthy Rolls Royce, we did set high goals – 25% cost reduction + 4 times improvement in Quality and 10-times improvement in Delivery – and we hit those targets. How?

    What we were certain about is that we had to retain our credibility at all times. We were, and had to be seen as, deadly-serious and we systematically worked to ‘condition’ the supply base that we WERE going to acheieve the results, with a preference for their active participation and collaboration. It’s worth noting that Rolls Royce is not able to switch suppliers easily or cheaply as most changes would require some of form of ‘engine re-qualification’, the cost of which is easily into six figures territory. So we had to work with the existing supply base – INTENSIVELY.

    That conditioning (and this is for you Royal Mail), must always be credible. Why not say ‘we are going to get there in two years, or have contracts that will get us there by the end of 2011’? That would give the suppliers time to adjust, work WITH you to develop new solutions to take cost OUT of your business, and then put YOUR money where your mouth is and systematically ENGAGE in post-contract value improvement (SRM if you like).

    Anyone who knows me understands I’m no fan of partnership but, I am committed to getting the most of your key supplier relationships. I’d expect the same from any ‘professional’ procurement organisation with any sort of maturity. It doesn’t come for free but it does deliver results.

    The idea that you can bully suppliers over a plate of vol-au-vents sounds, perhaps, like it came from the CFO’s office. At least I hope so for, if not, the actions of Royal Mail don’t do much for the credibility of our profession.

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