What Is Value in Procurement? — A University Lecturer’s View (Part 1a)

At Spend Matters we are keen to address procurement issues from every sector's angle, so we were delighted to hear from Dr Jo Meehan, who is senior lecturer in strategic purchasing at the University of Liverpool Management School. How strategic purchasing is taught to budding procurement practitioners is an interesting subject for us, as we have long debated the future of procurement, how the professional's skill will change and adapt alongside technologies and processes, and how we attract and keep best talent. So we will be talking to Jo in the coming weeks and reporting on how she teaches the profession.

However, for now, we are fortunate to be able to bring you an exclusive, mini-series in three parts, where Jo will share her expertise and opinion on the 'value of procurement.' She is currently involved in research exploring procurement maturity in the social housing sector. This links with wider research she is doing on the value - in the delivery phase - of major contracts. Jo is particularly passionate about championing the cause of contract management; she is concerned about how many organisations are leaking money through a lack of buyer-side contract management. And her concerns pertain to both public and private sectors. (To this end she will be presenting and leading a discussion around the benefits of contract management at PfH Live in Manchester on 29th June.)

Throughout this series she will look at how the contract management ‘gap’ can be filled. Starting today with what it is we mean by value, whether in the commercial or social sense, at sourcing and tender stages, and how it can be managed. The first of the series is in two parts, with the second following directly tomorrow.

Valuing Value

We all know that procurement needs to move on from narrow price-based thinking to broader, longer-term value-based models. Raise this with fellow procurers and you’ll receive enthusiastic nods and supportive retweets linking to a bunch of blogs that tell us about the importance of value in procurement. It appears we are preaching to the converted, so why, oh why, are we still debating it and not actually doing it?

At a surface level there is often common ground across stakeholder groups of what value is - total cost, life-cycle analysis and assessing benefits minus costs. Dig a little deeper however and it becomes more complex. Who defines value? When should value be considered? What criteria should be used? Difficult questions like these always come up and I’m hoping to answer some of them when I speak at a procurement event PfH Live next month.

Defined by whom?

Beyond acknowledging that value is something more than price, the subjective nature of what is ‘valued’ creates difficulties, particularly for non-monetised issues like health, trust, commitment, wellbeing, social capital and knowledge. The potential impacts of procurement decisions are endless and the broader the dialogue with a wide range of stakeholders, the more difficult defining value can be.

For issues of expediency, there is a tendency to engage with traditional, commercially oriented stakeholders such as suppliers, internal colleagues or professional peer groups rather than non-business groups such as local communities, employees or organisations from different sectors. This tendency reinforces the status quo, marginalises minority voices and fails to broaden our view of impact.

Where organisations do seek wider considerations of value, the challenge of actually reflecting these dimensions fairly in tender and contract processes is substantial. We might all know that there is a lot sitting behind numbers and scores – but they are useful, easy methods of quantifying value. Yet an obsession with figures can mean that nuance is lost. Procurement departments must ensure that deeper messages and issues aren’t replaced by a focus on statistics.

Tomorrow we continue with two more points: When is value considered? and Value assessed by which criteria? which will conclude Part 1.

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