Many of those working in procurement think that public and private purchasing functions operate in different universes. They equate working in the public sector with red-tape and rule books and the private sector with freedom and innovation. Whilst this might be true to some extent, there are lessons to be learnt from both sides.
The main difference between public and private sector organisations is what constitutes their overall objective. Whereas private companies aim to increase profit margins and grow, public companies typically have goals linked to social and political factors.
I have spoken to a number of people working in public sector procurement about the challenges facing them and a common theme is the lack of cost related goals. The focus on cost reduction found in private companies is simply not replicated in many public organisations. In the latter, innovative new procedures to reduce expenditure are only considered when they become necessary. In contrast, private sector companies tend to be financially driven and constantly expected to reassess their methodologies in an attempt to increase margins and productivity.
However, with the government struggling to reduce the deficit and many businesses increasingly looking to procurement to drive growth in a difficult economic landscape, procurement functions in each sector are coming under increased cost pressure. In this context both public and private procurement would do well to look to one another for inspiration.
It goes without saying that both sectors are sufficiently different that it is impossible to draw clear parallels, however, I have selected a few examples where one could learn from the other.
Data and collaboration in procurement
Private sector procurement has long been using technology to turn data around spend information into cost insight. Up-to-date supplier and product data can be harvested to secure better deals and identify best practice solutions and suppliers. It also enables procurement departments to anticipate future trends, improve forecasting and consequently develop more effective supply chains. This is one area where public procurement lags behind its private sector counterpart.
Although I have used data as an example of an area where public sector procurement can learn from private, I could very well have mentioned the integration of technology in general. In a recent interview, Gustavo Piga, professor of economics at the University of Rome Tor Vergata, highlighted a need to invest in technology as one of the ways in which public procurement could bring about a step-change. Piga said technology would prove vital in eliminating waste and countering the supplier “cartels”, which public procurement is often faced with.
When it comes to public procurement, recent examples of “competitors” collaborating caught my attention. The boroughs of Westminster City Council, Hammersmith & Fulham Council and the Royal Borough of Kensington & Chelsea, for example, have been working together since 2012 in an effort to maintain the effectiveness of several frontline services. This alliance has allowed the boroughs to combine certain services to reduce overhead and management expenditure in the face of rising cuts.
The collaboration has also given rise to a shared eSourcing solution called “capitalEsourcing”. The latter is expected to simplify the sourcing process for the boroughs and suppliers, as well as deliver greater value to tax payers. The initiative has so far focussed on areas such as care for children and the elderly, as well as the maintenance of libraries. This type of collaboration between peers is rare in the private sector.
Of course working with other organisations, even competitors, is never straightforward, however, tighter margins call for new, innovative practices. Imagine how much two tech giants with production plants in China could save if they shared parts of their supply chain.
As I mentioned earlier, it is very difficult to compare public and private procurement practices. Each sector operates in its own distinct way and is subject to its own rules, regulations and variables. One defining characteristic that unites them right now is intense cost pressure.
The economic climate has led to government cuts and tighter margins for businesses. In both cases it is procurement’s responsibility to take the lead and continue to deliver value whilst reducing expenditure. Procurement functions in each sector have come up with innovative ways to do so and, despite their differences, can learn lessons from each other.