April 2010 © ProcurementExcellence 1 The Deficit, OEP and what it means for FE College Procurement * (* and everyone else in the UK) Peter Smith Tel

CIPS Past President CPO NatWest, DSS etc Founder of Procurement Excellence Non-executive Director of Remploy Developed OGC Procurement Capability Review model Worked with local authorities, Departments, Trusts, NAO, Audit Commission etc. Blogger and author Peter Smith April 2010 © ProcurementExcellence 2

News, views and opinions from the world of procurement and supply chain Lots of public sector stuff including “The Perfect Storm”; our view of the future of public procurement Also the monthly album review! Peter Smith April 2010 © ProcurementExcellence 3

Buying Professional Services April 2010 © ProcurementExcellence 4

Agenda for today Government efficiency and ‘savings’ The current economic position What it means to you April 2010 © ProcurementExcellence 5 Plus time for questions and discussion

History of efficiency in Government Gershon – 2004 Efficiency Review CSR 07 Operational Efficiency Programme April 2010 © ProcurementExcellence 6

History of efficiency in Government Operational Efficiency Programme The reviewed areas and lead advisors were: back office operations and IT, led by Dr Martin Read collaborative procurement, led by Martin Jay asset management and sales, led by Gerry Grimstone property, led by Lord Carter of Coles local incentives and empowerment, led by Sir Michael Bichard April 2010 © ProcurementExcellence 7

History of efficiency in Government Operational Efficiency Programme Key procurement findings: Increase scope of collaborative activity More collaboration, more use of Buying Organisations Need better information Transparent collaborative business models and governance £6 billion savings estimate through greater collaboration April 2010 © ProcurementExcellence 8

History of efficiency in Government Government makes huge claims for savings: “ Building on the SR04 Efficiency Programme, which successfully delivered over £26.5 billion in savings, and on plans to deliver another £35 billion in savings as part of the CSR07 value for money programme….” etc. The NAO says:  25% of savings are real  50% some doubt  25% not real April 2010 © ProcurementExcellence 9

History of efficiency in Government But up to now...it hasn’t really mattered. If real efficiencies were made, great; organisations could re-invest those savings If they weren’t made, or weren't real, the organisation still had enough funding to do what was planned anyway April 2010 © ProcurementExcellence 10 THIS IS ALL ABOUT TO CHANGE

Don’t like to worry you but.... JUNE 2007 © ProcurementExcellence 11 The Conservatives require cuts of £63.7 billion from an ‘unprotected’ spend of £241 billion That is OVER 25% spend reduction by 2014/5 Identified cuts (inducing freeze on public sector pay, pensions changes etc) account for about £11 billion £52.5 billion (over 80% of total) is not yet identified. 2010/15 to be the tightest 5 year period for government spending since (at least) WWII (all data from the Institute of Fiscal Studies)

April 2010 © ProcurementExcellence 12 Economic position “ The UK economy will “crawl” this year and expand less than previously forecast “ The new government must introduce deeper spending cuts and greater tax hikes” “ Bank of England Governor: poll winner will be out of power for a generation” “Taxes could rise by six pence in the pound over the next 10 years to slash public borrowing” “ Hung parliament 'could tilt Britain into Greek-style financial turmoil' “ a cut of £6bn in public spending this year would mean 30,000 public sector workers getting the sack”

Effect on colleges (and pretty much everyone else) It’s going to be bloody ‘Efficiency savings’ will be exposed if they are not real Cuts to services and jobs will be necessary; but genuine procurement savings will minimise the pain April 2010 © ProcurementExcellence 13 There is no panacea – that includes ‘collaboration’

Saving money through procurement Cost reduction is only one aspect of improving value Others include getting more (quantity or a higher specification) for the same money But REAL CASH COST REDUCTION is what is going to matter And there are only a few ways to deliver that April 2010 © ProcurementExcellence 14

The solution “The only way in which the required savings can be delivered will be through relentless attention to the whole spend management process.....public procurement should re-focus on this wider picture, and re-brand public ‘procurement’ as ‘spend management’. That will require effort in promoting proactive demand management to cut off spend at source; in rationalisation of specifications; in aggressive and commercial contracting; and in skilful and value driven contract and supplier management”. (“The Perfect Storm” White Paper, Procurement Excellence 2010) April 2010 © ProcurementExcellence 15

Saving money DEMAND MANAGEMENT SPECIFICATION MANAGEMENT MARKET MANAGEMENT COMMERCIAL MAMNAGEMENT TRANSACTIONAL MANAGEMENT April 2010 © ProcurementExcellence 16 5 ways to save money

Demand management Buy less Reduce or eliminate the need for the goods or services Travel video conference IT life-cycle Control professional services, contractors Monitor consumables usage April 2010 © ProcurementExcellence 17

Specification management Buy a ‘cheaper’ or more appropriate specification of product of service at lower cost Down-spec on IT or other equipment Reduce frequency of cleaning, maintenance Look hard at travel and other policies ‘No frills’ approach to everything April 2010 © ProcurementExcellence 18

Market management Change supplier to one who can offer a lower price for equivalent goods or services Understand the market Consider collaborative options Do include the cost of change in your assessment April 2010 © ProcurementExcellence 19

Commercial management Negotiate a better deal from current suppliers That may mean them reducing their margin or coming up with ways to reduce their own cost base Not always easy in the public sector April 2010 © ProcurementExcellence 20

Transactional management Reduce the cost of the overall transaction Elements of cost lie in letting the contract, ordering, invoicing and payment, management of the relationship.... Consider use of GPC, electronic catalogues Collaboration helps here April 2010 © ProcurementExcellence 21

WARNING Collaboration, developing huge procurement organisations, or even more use of current collaborative ventures will not IN ITSELF lead to cost reduction You should look hard at collaborative options – but remember that you can buy very expensive things – and lots of them – from consortia! You have to “do stuff” in your organisations to make cost reduction happen April 2010 © ProcurementExcellence 22

And remember.... Every pound you save helps towards maintaining another public sector job and sustaining strong public services So...consider yourselves “SPEND MANAGERS” And good hunting! April 2010 © ProcurementExcellence 23

April 2010 © ProcurementExcellence 24 Peter Smith Tel Thank you