UK government could slash buying costs by a third

20 June 2011

20 June 2011 | Lindsay Clark

The UK government could cut the cost of running procurement by 30 per cent by adopting seven steps introducing shared services centres, according to Accenture.

The business consultancy said Whitehall could slash the estimated £1.14 billion administration of purchasing with a move away from a “large numbers of small and widely scattered operations”.

Instead, by “consolidating operations into a ‘middle office’ in lower-cost areas could reduce facilities costs dramatically, while lowering headcount, eliminating redundant activities, encouraging more on-contract buying, improving productivity through process standardisation, and simplifying the task of enacting and measuring continuous improvements,” said the report, Seven Procurement Initiatives that CanStretch Public Sector Budgets.

The report says these “middle offices” could be located offshore, “if politically feasible”.

The six remaining ways of improving government procurement put forward in the report include:

• Using web-based applications – or cloud computing – to give access to more up-to-date procurement software and standardise categorisation to improve the quality and timeliness of spending data

• More collaborative sourcing would allow the public sector to lower costs. Common, indirect categories should be centralised, while direct spend should be aggregated at the highest level that makes sense. The government should slash its number of suppliers and each procurement professional could manage, on average, ten times the spend they currently do

• The cost of delivering goods to the public sector could be cut using an Amazon.com-style logistics system. “That Amazon-like entity consolidates demand for items across government departments and then interacts with the supply base – making sure that price and logistical economies are fully captured,” the report says.

• The government could better manage its strategic suppliers, building in continuous improvement into contracts that stretch up to 10 years.

• The public sector could offer procurement staff better training by creating a “virtual academy” based on e-learning. “Governments tend to rely primarily on skills-updates that are infrequent, classroom-based (instructor led), and rarely customised to meet individual needs.”

• Using “zero-based” budgeting to reduce demand. In the case of business travel, this would mean a “new cost profile that is based on a full analysis of travel modes, patterns, volumes and routing”.

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