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Comparing public and private sector procurement practices isn’t an easy thing to do. Both sectors operate in such different ways, with so many variables that it’s hard to conduct a like-for-like assessment.
Procurement technology is one of those points of difference. Private firms are eons ahead of their public sector counterparts in terms of processes like predictive procurement, smart data and real time collaboration. However, there is good reason for this. The disparate nature of many public organisations means that, both structurally and culturally, it’s tough to integrate systems and gain compliance from staff around digital procurement.
One barrier is quality of data. Years ago, the UK government undertook a massive spend analysis project. They examined 17 departments, 15 million transactions and £98bn of expenditure with 220,000 suppliers. Data was found to be of poor quality with varying levels of granularity and a number of different home-grown classification systems were used.
In the end major savings were identified and spend analysis systems transformed but it took years because the standard of data differed so much. This is the case across many public organisations today.
Another issue is investment. In the private sector, procurement is often represented on the board. Its role in determining the future of the business is recognised through financial support for new technologies and staff training. In the public sector, where resources are stretched, investment in both procurement technology and associated skills is limited.
Despite the operational differences between the sectors, some digital procurement initiatives being used by private firms could create real value in public bodies.
Using technology to turn spend information into cost insight is one example. Many businesses take this sort of integrated data analysis for granted. Public bodies need to catch on, moving away from finance orientated systems to smart data programmes. This is a step up from ’big data’, combining the information that has been collected, pooled and analysed with externally sourced intelligence to forecast demand and drive efficiency in the supply chain.
Real time collaboration is another area of focus. Joining up information systems within a public sector organisation – for example getting an asset management system and procurement system to identify forecasted solutions together – could help co-ordinate supply chains more effectively and reduce costs.
This might also take the form of regional organisations working together through a real time procurement collaboration to identify how demand could be managed more effectively within the supply chain to mitigate costs.
Many private companies use procurement technology to gain market intelligence. In the public sector, resource constraints mean that purchasing staff often go to suppliers for market information. Naturally suppliers tell their customers enough information to create further demand. This power paradigm needs to change and an example of the shift is the work Procurement for Housing is doing with the University of Liverpool to enable social housing organisations to share independently sourced market data rather than being forced to go to suppliers.
So far, procurement technology has been adopted by public organisations in a minor way – limited mainly to e-purchasing and online tendering. This transactional approach must become more strategic if public bodies are going to realise the value creation that digital systems can offer. Before this can happen, the sector needs to overcome the structural, skills and resource barriers that are hampering progress.
Steve Malone is MD of Procurement for Housing