Why Supplier and Contract Management are the hot topics for government CPOs and CCOs right now

While it has come a long way in introducing a whole range of online services, the public sector still has far to go to achieve digital efficiency in its day-to-day commercial operations. The Covid-19 crisis has forced government’s hand somewhat in accelerating the rate of digital transformation as commercial and procurement officers have had to rally to find digital solutions to rapidly changing demands.

This crisis has exposed areas where public sector departments are doing well, and where they are not, highlighting the mid- to long-term need to mitigate the risk of key product and service shortages and ensure continuity should something like this ever happen again.

The weaknesses associated with manual processes (which are still extensive in the public sector) have been brought to the fore during the past three months. Stories of invoices and POs piling up in empty offices, unprocessed until someone physically goes in and picks them up, and staff in underground storage facilities wading through paper contracts, really do not need to be happening today. Not only has this reinforced the message of inefficiency, but at this time in particular, lack of touchless process augments the risk of spreading disease. There are plenty of technical ways to do these jobs with speed and without touch.

We spoke with Richard Hogg Managing Director and VP Northern Europe at independent business spend management firm Jaggaer, which has a strong history in helping government departments of all sizes meet their digital procurement goals. They have an ear to the ground on the pain points of public sector chief procurement and commercial officers, and confirmed that supplier management and contract management seem to be the key topics on the minds of CPOs and government commercial officers at this time.

The problems of the past three months

Richard talked about what government sector professionals have been trying to deliver over the past three months or so, and this has primarily been continuity and quality of supply into the right places at the right time (clearly mostly in terms of medical supplies). They have faced a nightmare of stock and inventory problems, especially in the early days. Lack of clarity on where the stock is, which suppliers they have contracts with, where the spend is, the details or terms of those contracts, the delivery schedules or the issue of sourcing new supplies, have all revealed challenges to which they have risen, despite legacy and dispersed systems restrictions. But they are challenges they do not care to face again.

“Having to look through paper-based contracts and disparate electronic forms of emails and spreadsheets has left these organisations in a revolving disarray of jumping from one emergency response to another,” he told us. “Simply trying to get stock from one place to the right place, at the right time, and working out how to replenish that supply has really exposed the lack of understanding of the ‘as is’ position with existing suppliers. It has also exposed the weakness in their ability to identify new suppliers or partners, and this has brought home the need for a proper digital strategy, adopted and well executed.”

“The competition for specific goods and services between buying communities has exacerbated a situation which could have been handled had the public sector acted as one. But without the transparency, visibility and indeed auditability of procurement processes, this is an impossible ask.”

The challenges for the next three months

It is only really now, when we are coming through that first phase of fire-fighting, that departments are looking to their mid- to long-term plans of how to better prepare for this kind of situation. While they have reacted as quickly and innovatively as possible, given the enormity of the task and lack of comprehensive technical support, if this is never to cause extensive problems again they will need to understand their supply base more fully, including who the T3 and T4 suppliers are that are competing for the same demand. They are realising that the only way to solve the supply and demand problem and their inability to respond rapidly, is to plan for and accelerate their digitalisation strategies.

“Not only does the removal of paper invoices, communications, documents and contracts have obvious and immediate health benefits,” advises Richard, “if you are to have any chance of really understanding what your organisation is spending and where, and is likely to spend in the near future, have easy access to contracts, and strategically review them, then digital supplier management and contract management are the best mechanisms. The financial services sector drew learnings from the financial crisis a decade ago, they implemented and adopted processes and underwent material legislation changes with policies enforced globally and locally, so, today, the public sector must draw from this experience. While the communities affected are different, they need to consider the impacts of outsourcing, rethink near shoring, reallocation, bringing supply centres under greater control, and do preparatory assessments to cope should a partner go bust or key outsourcer run out of supply.”

“While government has been very good at ensuring there are the right supplier support mechanisms in place, and that supplier payments are kept ticking over, promoting the Procurement Policy Note in the UK for example with a strong directive to proactively shorten payment terms and keep cash flow running, now, coming out of phase 1, this can no longer be an aspiration. Government bodies must get it right, and there are two cornerstones to achieving that. The whole question of visibility into supplier relations and contractual terms must be addressed and is critical to how governments make decisions going forward: decisions on whether to defer payment terms or give favourable extensions on KPIs need an understanding of supplier relations to date.”

And the next six …

“A staged exit must contain some clear risk mitigation activities. Bringing centres of supply closer to home and supporting local supply chains to generate more control and resilience is one. Some sectors, like food and grocery, have made this work very well. Becoming a customer of choice is another. The wider public sector has an opportunity to do this. Organisations dealing with the public sector frequently have complained about how difficult it is to do business with. But the public sector has shown that coming through this crisis, the way it has tried to underpin the supply chain and stimulate the economy, has led to a lot of positivity. We believe the next period brings an opportunity for public sector organisations to work as one and position themselves as a customer of choice to be relied upon to accelerate cash flow into business when times are tough.

Considering we have an interesting double storm ahead with Brexit and probably a second Covid wave, understanding its position as a single government entity will be crucial. It will require transparency into who they are dealing with and where the money is being spent. It will require at least a basic form of digitalisation of spend analysis, supplier and contract management if suppliers are to place their trust in them and weather the storm with them. And this is what we see as the biggest and most fundamental step change for the next six months.”

To read more about ‘going digital in public sector procurement’ you can download a free white paper here.

And Jaggaer will be talking to the Department for Work and Pensions about how it drives value through supplier relationship management in a webinar on July 9th.

 

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