What is the Future of Public Sector Procurement?
Public sector procurement has recently made headlines, in the UK at least, as it works its way up the agenda. The coalition government has committed it...
Public sector procurement has recently made headlines, in the UK at least, as it works its way up the agenda. The coalition government has committed itself to huge cost savings in a bid to reduce the budget deficit. While there has been speculation that outsourcing public sector services will result in job losses, there is another side to outsourced procurement in the public sector. For smaller suppliers, it could pose a huge opportunity.
Roger West, Global Head of Outsourced Procurement at DHL, believes that there are increasing opportunities in the public sector.
“We have been talking to various government departments about how we think procurement can be done differently or better, particularly under the new government, and with the current financial constraints,” he says. “There’s a huge emphasis on saving money at the moment, which is great for procurement because that’s what we’re supposed to do.”
The move to outsourcing public sector services could result in more collaboration between the private and public sector. Capgemini Procurement Services’ (formerly IBX) UK Director, Mark Masterson, has observed that UK public sector bodies tend to operate autonomously and believes they could learn some lessons from successful private sector outsourcing. “We know there are huge opportunities for public sector to get benefits out of this. They should perhaps look at some of the great cases in the private sector and focus on what they can do that’s the same, rather than what’s different,” Masterson explains.
One example of a public sector outsourcing strategy that has worked is the NHS Supply Chain. The Department of Health began a process to outsource the supply chain of products in the NHS which resulted in DHL starting the contract in October 2006.
One aim was to bring more commercial practice to the procurement of products in the NHS in order to secure benefits of £1 billion. As part of the evolution of procurement capability within NHSSC, a Value Acceleration programme was implemented at the start of 2009. “The programme built on the transformation work since the start of the contract but introduced some new tools to deliver even more benefit,” he says. Last year, DHL carried out 54 online auctions for the NHS. “On top of the submitted bids the auction process delivered over 16 percent further savings value that would otherwise have been missed,” he claims.
Another strategy the company used to extract more value was to take parties out of the supply chain, by buying directly from manufactures rather than
Creating value is a significant part of procurement. Masterson recognizes that it’s about creating a structure that delivers more value than can be achieved internally. “For organizations thinking about outsourcing, they should not be focusing on cost per unit head count and cost per transaction, but how they can put something in place that drives up the overall value of what’s delivered.”
Winners and losers?
There is a belief in some quarters that it is the smaller suppliers who could potentially lose out from public sector outsourcing, as they are overlooked in favor of large manufacturers. West believes that it does not have to be the case, explaining that in the food supply chain there are ways to incorporate smaller manufacturers, and local farmers and food producers into the supply chain. He cites DHL’s virtual farmers’ market concept as one such solution. However, it might take more than this to satisfy small suppliers that there is still a place for them in the public sector supply chain.
Capgemini has a strong footprint in the public sector market. Its Procurement Services division has been working with the Norwegian government since 2004 on a central platform for the whole of the Norwegian public sector. “What we’ve got there now is an infrastructure designed to be available for every single public sector entity,” says Masterson.
He admits that establishing this platform and the technology behind it has been challenging but believes that what the country now has is a highly flexible infrastructure. “The key was to get common standards and processes across everything, as we know this is where a lot of the value comes from,” he adds.
Capgemini achieved something similar in Scotland. “We’re now working on producing a combined platform taking the best of what we’ve achieved in Scotland and what we’ve achieved in Norway to the whole global public sector market,” Masterson explains.
With public sector procurement set for a shake-up in the coming months, the industry is likely to adopt alternative tools and technologies. Collaboration with the private sector could also help the public sector achieve savings in outsourced procurement.
EU and US agree end to Airbus-Boeing supply chain tariffs
The EU and US have agreed to resolve a 17-year dispute over aircraft subsidies, suspending tariffs on billions of dollars' worth of goods that have plagued procurement leaders on both sides of the Atlantic.
Under an agreement reached by European Commission Executive Vice-President Valdis Dombrovskis and US Trade Representative Katherine Tai on Tuesday, the tariffs will be halted for a period of at least five years.
It will bring an end to punitive and disruptive levies on supply chains that have little to do with the argument, which became embroiled in the trade battle. Businesses on both sides of the dispute have been hit with more than $3.3bn in duties since they were first imposed by the US in October 2019, according the EC.
The US imposed charges on goods upto $7.5bn in response to a World Trade Organisation ruling that judged the EU’s support of Airbus, its biggest aircraft manufacturer, unlawful. A year later in November 2020, the EU hit back. The WTO found the US had violated trade rules in its favourable treatment of Boeing, and was hit with EU duties worth $4bn.
In all the tariffs affected $11.5bn worth of goods, including French cheese, Scotch whisky, aircraft and machinery in Europe, and sugarcane products, handbags and tobacco in America. Procurement leaders on both sides of the fence were forced to wrestle with tariffs of 15% on aircraft and components, and 25% on non-aircraft related products.
Boeing-Airbus dispute by the numbers
- The dispute began in 2004
- Tariffs suspended for 5 years
- $11.5bn worth of goods affected by tariffs
- $3.3bn in duties paid by businesses to date
- 15% levy on aircraft and 25% on non-aircraft goods suspended
Both sides welcome end to tariffs
European Commission President Ursula von der Leyen branded the truce a “major step” in ending what is the longest running dispute in WTO history. It began in 2004.
“I am happy to see that after intensive work between the European Commission and the US administration, our transatlantic partnership is on its way to reaching cruising speed. This shows the new spirit of cooperation between the EU and the US and that we can solve the other issues to our mutual benefit,” she added.
Both aircraft manufacturers have welcomed the news. Airbus said in a statement that it will hopefully bring to an end the “lose-lose tariffs” that are affecting industries already facing “many challenges”. Boeing added that it will “fully support the U.S. Government’s efforts to ensure that the principles in this understanding are respected”.
The US aerospace firm added: "The understanding reached today commits the EU to addressing launch aid, and leaves in place the necessary rules to ensure that the EU and United States live up to that commitment, without requiring further WTO action."
This week’s decision expands upon a short-term tariff truce announced in March this year. The EC says it will work closely with the US to try and further resolve the dispute, establishing a Working Group on Large Civil Aircraft led by each side’s trade minister.
Airbus last month signalled to suppliers that post-pandemic recovery was on the horizon, telling them to scale up to meet a return to pre-COVID manufacturing levels. “The aviation sector is beginning to recover from the COVID-19 crisis,” said Airbus chief executive Guillaume Faury, adding that suppliers should prepare for a period of intensive production “when market conditions call for it.”