Cap Gemini published their Global Chief Procurement Officer 2010 Survey report a couple of weeks ago. (Available free, registration required).  It is a slightly unusual document in that it is very much in two halves.  The first part is a fairly conventional but useful  survey of procurement leaders, with analysis and comment as you would expect.  I’ll come back to that in a moment.

The second part though is a collection of seven papers written by Cap Gemini procurement and supply chain consultants, designed to address the changing needs and new strategies for procurement, under these headings:

• Building a collaborative relationship with the CFO
• Establishing and delivering longer-term strategic objectives through data, technology, processes and talent
• Building the right organization and operating model
• Extending influence into service spend
• Employing procurement-as-a-service to transform the organization
• Understanding best practice in procurement performance measurement
• Using Lean procurement to remove barriers to innovation.

They are quite technical, detailed – some are almost ‘academic’ in style.  I need to read more thoroughly but while some of the content does push the Cap cause a little (such as a positive spin on procurement outsourcing), there seems to be some good IP amongst it as well.  I’m somewhat surprised though that these papers have been presented as add-ons to the survey results, as I’m not sure how many people will actually get to them, let alone read them in detail.  I wonder whether they might have been better as separate ‘white papers’ or similar?

Anyway, back to the survey.  From the responses, most firms believe we are coming out of recession, but Cap say that:

“If that is the case, then the behavior of most Procurement organizations seems to be slightly misaligned”.

CPOs and their organisations are, in Cap Gemini’s opinion, too focused on cost reduction rather than on,

“…innovation and bringing growth to the company’s top line.”

I’m not sure I agree; when you go through difficult economic times, it doesn’t seem surprising that procurement will reflect the organisational need to batten down the hatches and drive for savings and value.  Anyway, more positively, 70% of respondents report directly into the Boardroom, and a quarter to the CEO or Business Head, which means procurement is better positioned to take on a more strategic role than ever before.

CPOs seem to be aware that their role is changing and needs to change, and there is also a trend towards more centralised or centre-led organisational models; perhaps in response to tough times and / or a recognition of the value procurement can bring where it has appropriate control.  Spend under control of Procurement is showing a steady growth across the sample as well; this to me is one of the two or three key metrics for measuring procurement success.   However, when we look at the detail, only 49% of CPOs have contingent labour under control; as we’ve said before, a key area with a lot of potential.  Legal services coverage is even lower at 38%.

The most shocking finding for me is that 64% of organisations are putting less than 20% of their spend through ‘eProcurement’.  As Cap seem to define eProcurement as pretty much anything from eSourcing to auctions to transactional platforms (catalogues, workflow), then that seems very low and suggests huge untapped opportunities.

Anyway, the survey results are well worth reading; and the papers worth a browse to identify where they may address any current issues you’re facing.

In truth, there weren’t many big surprises in the Review, although you might consider squeezing another £7 billion out of a range of seemingly obscure welfare measures either impressive or harsh.

But there is still no real clarity on what it means for Government procurement, including OGC / ERG, although the additional £3 billion admin savings in Whitehall doesn’t bode well for procurement jobs in central government.  There was no overarching indication of a strategic view on how procurement actions might help the situation, so we will have to wait for individual organisations to start announcing their own more detailed plans.  But I thought we would look instead in this post at what this all means for private sector suppliers to the public sector.  I don’t pretend this is all-encompassing, but rather a few immediate thoughts on winners and losers.

Losers

Private landlords letting to housing benefit claimants; whilst the new restrictions will be tough on some claimants, there have been market distortions and super-profits available to some landlords so reform was needed.

Legal Aid lawyers; the Ministry of Justice budget settlement is pretty tough and Legal Aid is a major part of that, so I expect big cuts here. (The effect of the cuts on the whole justice system – prisons, courts, Legal Aid – is in my opinion where the Coalition is most politically vulnerable to future ‘events’).

Small business generally; however it is positioned, more Philip Green type ‘centralised procurement’ is unlikely to be good news for SMEs.  Even at more local level, Police or local authorities collaborating more in procurement terms may make sense, but is rarely good for small, local suppliers.

Consultants in general, particularly those with major central or local government business; Health may be a better prospect given both the slightly healthier budget position and the magnitude of structural change there.  Expect announcements of redundancies and consulting firms going under soon (OK, don’t all cheer at once….).

Winners

Some major capital project suppliers; Crossrail, major road projects and wind have all come out of this reasonably well.  My shares in Balfour Beatty are probably OK, although the schools capital budget is way down on what ws going to be spent under Building Schools for the Future.

‘Social care’ providers of goods and services who can take advantage of the growing ‘personalisation’ agenda in this sort of care provision (giving individuals their own budgets rather than goods and services being provided centrally).  This may be an area where innovative and smaller firms can compete.

Procurement lawyers; with work more scarce, and more centralisation, suppliers are going to be less reticent about challenging procurement decisions.  If you don’t win the central contract, you are out in the cold, so why not challenge?  And if procurement teams are stretched, and corners are cut….

Consultants and software providers who can link their work directly to savings and ideally take on some risk in the process; and the procurement area must be a key target for this sort of proposition.  One would expect there should be opportunities in areas such as Spend Analysis, eSouring, electronic auctions; and in cost-reduction delivery services (don’t use the consulting word, whatever you do) that might work alngside smart technology.  There should be some mutual advantage to the public sector and solution providers who can take some risk, deliver a service with real outcomes and value, and help make the savings needed.

But we’ll see…

I have written a White Paper, sponsored by American Express, looking at the challenges for public procurement given the current economic situation (and of course the Spending Review).  It looks at what public procurement needs to deliver, the risks if the wrong steps are taken, and what procurement can and should be doing to drive savings and value given that the resources for procurement itself are likely to be also under pressure.  “Doing more with less” sums it up.

The paper is available from Ben McKee at Amex [Ben.E.McKee@aexp.com] and I think through their website shortly.

Amex are also hosting a seminar next Tuesday, 26th October at 45 Millbank, running from 9.30 am till lunch (provided if you want to stay and network):  “Public Procurement – Rising to the Challenge of the Spending Review”.

I am talking about the issues identified in the White Paper, but perhaps more interestingly, the keynote speaker is Nigel Smith, until recently Chief Executive of OGC.

There is no charge for the event; and there are just a few spaces still available.  If you are interested, please also email Ben at Ben.E.McKee@aexp.com including your name, organisation and job title please.  It should be interesting and, I suspect, quite lively with plenty of opportunity for debate.

I enjoyed this piece from Jon Harvey about his experience of being on the receiving end of procurement processes, even though it made me laugh and wince at times as a member of the procurement profession!  His ironic guide for procurement people describes how we should:

“Make sure that the PQQ is at least 65 pages long with 367 separate items of information to gather”.

He has obviously had some bad experiences, and I must say even with my more limited experience of bidding formally for work, I recognised much of this.  He provides organisational development consultancy, but finds that buyers often treat this service as a simple commodity – one of the points Fiona and I covered in our book, where the providers we interviewed put this pretty much top of their list of complaints.  As Harvey says,

“Many of the questions you use when sourcing (for example) office products, utility supplies and other bulk purchasing can be used with these consultants too.”

He also describes buyers using a lottery to select which PQQs even get evaluated.  I assumed this was illegal (in the public sector) but on checking I believe it is allowable as long as you tell suppliers in the advert that you may do this.  It is, of course, truly appalling procurement practice even if it is legal….!

I had a phone call the other day.

“Hi, this is Garry.  I’m MD of Trade Extensions, we know Jason at Spend Matters and he suggested we should call you and introduce ourselves”.

Great – good to speak.

“But I think we might know each other.  Did you run the Mars Confectionery cricket team in the late 80’s? ”

Yes….. only because no other mug would book the pitch, find the opposition, get 11 people who would turn up, buy the beers….

“It’s Garry Mansell.  I was the opening batsman…”

What a small world.  20 years since we last met. Garry was a young R&D scientist, I was an almost-as-young buyer.  Anyway, he now runs Trade Extensions, who as Jason has explained have a particularly strong software offering in the sourcing optimisation ’space’.  (They have an integrated suite of eSourcing tools but optimisation is where the business really started, developed by two Mathematicians from Uppsala University in Sweden – they are still involved and major shareholders).

I had a demo the other day and it is very clever stuff – if you have a sourcing task that involves hundreds of line items, with dependencies, many suppliers, multiple constraints and so on it is very impressive.  I love numbers and enjoyed the optimisation and related topics at university (far more than the pure Maths which I never got to grips with) so I was fascinated by the way you can vary your constraints and get instantly re-calculated outcomes in seconds across thousands of bid items.  ” Let’s have no more than two suppliers from Spain, only one suppleir per pick-up location, no-one gets more than 20% of our business, and I won’t have any suppliers whose name begins with a ‘c’…”

After Mars Confectionery, Garry ran a business within Mars – Freight Traders – then with a few colleagues left Mars (all very amicable), and did a management buy-in to Trade Extensions, having used their platform in Freight Traders.  Their business has grown well beyond freight procurement – although that is still a strength – and they have a strong blue-chip, mainly private sector customer base, with some very impressive names on their list. And quite unusually, their business is split almost equally between the USA and Europe.

Anyway, we’ll talk further in more detail about their offerings I’m sure; and I’m still shaking my head over how 20 years can turn a bouncy young food chemist (with a very decent off-drive) into a serious software mogul!

It’s getting hard to keep up with them; another bunch of providers have agreed MOUs with Government as part of the “negotiating immediate cost savings with major suppliers” initiative.

I was talking  to a friend recently about an old colleague of ours from many years ago who has gone on to be one of the best known and successful CEOs in the FTSE 30.  He turned around a real struggling household name company, not by any super–complex strategies, but by getting the basics right; pricing, staff motivation, supply chain and marketing, all done in a very pragmatic manner.

One step he took was to get out of a major outsourcing contract that his predecessor, a high powered, knighted,  city-connected gentleman had got the firm into.  And that outsourcing deal was done on the proverbial (or maybe the actual) golf-course.  I saw the contract a couple of years into the deal and my goodness, it looked like it was done on the golf course, or perhaps in the bar afterwards over a couple of G and Ts (no ladies in the bar please, jacket and tie at all times).

Some of the Ts and Cs were almost laughable; it was a truly lousy deal for the customer.  All because, I would surmise, of the lack of any competitive pressure on the provider.  Single source = poor value (in most cases) is a pretty good rule of thumb.

So I very much enjoyed this piece by Esteban Herrera on the Horses for Sources site.  Esteban points out that single source can be bad news for the provider as well, which I must admit I hadn’t really thought about.  But I suspect he is right, although I still think I would rather be the provider than the buyer in such situations….An interesting and enjoyable read anyway, and he manages to work in a picture of LIndsay Lohan as well (was that an office bet I wonder?)

Anyway, you know it makes sense; for outsourcing and most other stuff.  Compete it.

I was about to write a post which was referring to a piece on the Procurement Intelligence Unit (PIU) website, when I realised I haven’t ever mentioned the PIU previously.  So I’ll put that right now and come back later to the other issue.

The PIU was formed around 18 months ago by Mark Perera, one of the founders of the Procurement Leaders magazine and organisation.  Mark is now non-exec chair of Procurement Leaders (PL) and is putting most of his time into building the PIU.  I’ve got a lot of admiration for Mark, who has built from scratch (with his team) a very credible organisation in PL, with a mainly private sector, very international and blue-chip customer base.  He’s looking to replicate that with the PIU, which is offering “independent strategic research, market intelligence and benchmarking services”.

It is a corporate subscription model, similar to PL, and the research is both generated from what PIU believes are topics and markets of interest; and by members’ identifying areas they wish to see covered. As they say:

Firstly, our quarterly executive research studies provide a detailed, cross-sector and case study-led examination of high-priority CPO topics, such as 2010’s Organisational Alignment, Talent Management, Demand Management and Procurement Strategy reports.

In addition to this, our weekly operational reports analyse a variety of key spend categories, sub-categories, supplier markets, commodities, new technologies and country risk profiles.

While it bears some comparison to organisations such as the Procurement Strategy Council, it’s focus on ‘hard’ procurement research is pretty unique and it will be interesting to see if Mark can create another useful and successful procurement support organisation here.  I’m sure we’ll come back and feature what they’re up to in the future.

(* I would stress that no money or beer changed hands in the writing of this post… but in the interest of full disclosure, I seem to remember Mark did buy me a cup of tea a while ago.. just the one though…)

Jason Busch at Spend Matters points out in a post yesterday that much of the new employment in the US, such as it is, has come via temporary staff – or ‘contingent labor’ as our US friends call it.  (Two countries separated by a common language and all that…)

He suggests that procurement needs to get to grips with this area of spend; and I would support that advice in the UK and Europe as well.  Of course, labour and employment regulations around temporary staff differ across European countries, which creates more of a challenge; but there is no doubt that procurement can add a lot of value to what is traditionally a line or HR managed area.

In my experience, procurement often gets as far as putting a preferred supplier agreement in place, with perhaps some negotiated margins with the major staff providers; but then backs off again.  And that is rarely enough to really control demand, manage specifications, monitor compliance or capture supplier performance; all of which the organisation should ideally be doing.  As Jason says;

Granted, procurement must work hand-in-hand with HR and key business leaders (e.g., IT), a department increasingly dependent on contingent workers. And they should also get to know the managed services provider (MSP) and vendor management system (VMS) landscape as well. HR should definitely be a partner and not the driver of contingent procurement efforts.

Coincidentally, I caught up with Fieldglass, one of the technology leaders in this sector, last week for a chat, and I’ll write about that later this week, but in the meantime the Spend Matters Compass research reports focusing on this topic are excellent and free to readers here .  And the Aberdeen report we mentioned last week – which put Fieldglass at the top of the charts in this area along with Emptoris, IG Navigator and Beeline – is available here via the Emptoris web site.

Two very different firms, two very different sets of financial results.

Accenture recently announced fourth quarter and full year results at the high end of market expectations.

Net revenues for the fourth quarter of fiscal 2010 were $5.42 billion, compared with $5.15 billion for the fourth quarter of fiscal 2009, an increase of 5 percent in U.S. dollars and 8 percent in local currency.

Operating income for the fourth quarter was $714 million, up from $672m the previous year,  or 13.2% of revenues.  That’s a nice healthy profit margin for anyone negotiating with Accenture (including Governments)  to get stuck into.  Remind them of that when they give you the hard luck story about the rate increase they so badly need.   Interestingly, their Health & Public Service operating group was the only area to show a downturn; but they have so many other business areas that their spread of work and geography means they can overcome reductions in Government spending, locally or globally.

Now contract that with Tribal , the UK based consulting and recruitment firm. Half year group revenue was down 5% and adjusted profit before tax declined from £7.7m to £4.6 million.  Tribal are a good firm, but have been heavily dependent on UK public sector consulting, interim staff and recruitment markets.  Those are of course three of the spend areas that have taken a rapid hit since the spending brakes were applied in May.  Times are tough for firms like this.

So procurement executives need to keep a supplier risk eye out for key providers who are heavily dependent on the UK – or probably any ‘Western’ – government for a large part of their business.  And, not that Tribal are a small firm by any means,  I do worry that the expenditure cuts are actually going to hurt small to mid size ‘local’ suppliers more than they will hit the global mega firms, who will be protected by both their diverse customer base and the way they lock public sector clients into long-term, hard to escape deals.