Whitehall procurement of Office Supplies – further thoughts

Final Furlong covered the first 'centralised'  UK Government OJEU advertisement - for Office Supplies - very well here (in the 'comments' section) so I don’t want to go over old ground. But a couple of things struck me on reflection.

We know there has been criticism of frameworks – from National Audit Office, from Ian Watmore himself.  This new contract is still going to act as a framework to some extent. While there is considerable commitment from central Government, the ultimate scale of the business isn’t tied down.

But does this matter? I think I would argue that a commitment of £40 million a year should be enough to get the attention of the market and the best possible pricing. More challenging perhaps will be the price mechanism; we all know the games suppliers play in this category (bid low on the 200 high volume contract-price items, then make your profit on the other 10,000 lines.) So the pricing approach and evaluation methodology will be interesting here.

I would also argue that the real savings in this category come from demand / specification management, not a few % off the supplier prices. Standardising and restricting the number of items (down to the level of the ‘single ball point pen’ policy) is what matters - is this going to be mandated? Or can people still go for the expensive items?

And of course this has always been a problem with the Buying Solutions payment mechanism; they take a % of supplier revenue, so make more money if a customer buys expensive stuff. They have therefore never had a real incentive to actually push hard for specification rationalisation and demand management. Will it be different now?

The SME issue also is striking here. As Final Furlong pointed out, this is not a contract for SMEs. Now one option would have been to dis-aggregate the requirement further into smaller ‘lots’ which might have given smaller bidders some hope. I’m sure that was considered, but any benefits of that approach would have to be weighed against the benefits of a consolidated, single supplier (or 2 suppliers).

Again, I have to say I would probably have done the same. But it highlights the difficulty the central initiative is going to have in keeping everybody happy with these contracts; getting value and savings, but supporting SMEs, innovation and so on.  Which is why I would definitely be putting effort into how SMEs in the supply chain might be encouraged (and I would try and get more political focus on this, rather than purely the prime contractor targets). In the case of this contract, I wonder if we might see a strong focus in the evaluation criteria around supply chain management, including those SME, innovation, and sustainability issues.

 

Voices (4)

  1. Rob:

    It seems that this is receiving greater (slightly negative) coverage than anticipated.

    With reference to the final paragraph in this article (below), I do recall a rather lengthy dialogue with a specialist benchmarking firm who had the data to demonstrate one interesting dynamic in respect of a range of specific commodities: that leverage would eventually reach a plateau (even after buyers had encouraged maximum competition in areas such as added-value, service, product quality etc).

    I can confidentally state this (based upon experience): whatever pricing is negotiated on this considerable commitment (and potential future spend), better pricing will be secured by another much smaller public sector or private sector purchaser, and, potentially, from the same supplier.

    http://www.supplymanagement.com/news/2011/central-government-procurement-policy-defended/

  2. Final Furlong:

    Optimised combinatorial auctions have actually been run in the public sector, though mostly in local government (I personally haven’t seen one in central government – only sequential or parallel auctions).

    Though I’m not convinced that ‘office consumables’ (stationery and computer consumables) is a category or sub-category that lends itself to being broken up across a range of suppliers (SMEs or otherwise) in such a small country (on a little island) like ours.

  3. Ian Heptinstall:

    As was mentioned on one of the previous posts, isnt stationary an “acquisition” purchase and one where Purchasing 101 tels us the focus should be on total acquisition cost (TAC), not price?

    How will the tender minimise TAC? Consolidating all demand into a single package is a procurement tool in a professional’s toolkit, but from what I can gather it seems the only one the government is using at the moment. If the only tool one has is a hammer, its not surprising everything looks like a nail

    Has there been any analysis on the optimum package size? Going very big can often inhibit competition, and can run the risk of “over-trading” in suppliers where their limited management attention is too stretched. Service and inventory has a major role to play in the TAC of stationary. Will this tender fairly evaluate the option for stationary cupboards holding consignment stock which is vendor-managed (at least for the fast movers)? This would support local providers, and/or allow framework suppliers to be selected/managed locally, and to retain business based on service and total cost minimisation. Maybe some 2nd tier manufacturers may then provide attractive bulk deals for their products to be specified and provided via the 1st tier service provider without formal consortia. Maybe alternative sources available for the low-volume specials.

    If they are not careful the government risks getting into the situation the US found in the early 90’s when Al Gore introduced his “Hammer Award” for services to getting rid of red tape. This was based on an acropocral tale of the $436 hammer – procurement and management overhead swamped the price obtained by the consolidated deal done by the centralised purchasing team.

    I can see Chritine’s point that stationary is not strategic, but then £250M is not a trivial amount either. What interests me is whether they are procuring it “strategically” and looking to minimise TAC?….Or are they just focusing on the price element of TAC, and running the risk of saving £50Mpa off the price and missing the chance to remove £100M of working capital and £100Mpa in running costs?

  4. HedgeTrimmer:

    Optimised combinatorial auctions could be just what the doctor ordered for this and other large centralised procurements…a way to bring in SMEs and also minimise environmental impact. Of course such black arts are not allowed in public sector procurement (or no one has dared try them)…can someone please tell me I’m wrong?

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