7 Key Challenges Facing Local Government Procurement Managers
Author: Silke Therhaag
With expectations increasingly growing upon Councils external resources and customer expectations, so are expectations upon their procurement teams building up rather exponentially. The procurement functions in the local government sector are faced with a number of challenges most of which result from how procurement has been viewed in the past to current developments in the procurement space today. Today, there’s an obvious shift in the sector from budget driven to a value driven way of thinking and acting. Good procurement process and technology are increasingly becoming one and the same thing.
With scrutiny over how money is spent mainly due to money being scarce, and any inefficiencies open to public criticism, local government procurement managers face a tricky balancing act. Councils will continue to be under pressure, finding it difficult to raise revenues, whilst demand for services will continue to increase. That will make it more important than ever that all expenditure is made carefully with a real drive to achieve value for money. Yet simply buying what and how we have always bought just a little cheaper won’t solve the problem. A further challenge is around linking any savings procurement claims to have made to the bottom line. Agile procurement software will enable the measurement of sourcing impact down to the bottom line.
2. Procurement’s Value Proposition
For LGP managers this is an important time and role to own towards realising true benefits from data and analytics and putting clear category management and commodity structures in place to align with the business as well as the supply markets. Procurement in local government is more and more asked to demonstrate how it can contribute to the top line as much as the bottom. However, the shift exposes LGP managers to tough questions: what value does their procurement function actually deliver, is it agile enough to jump on opportunities for improvement, is it capable to embrace a new era of working with methods and skills so far foreign to local government procurement and moving away from the operational and governing function of the past?
3. Procurement Innovation
There is a need for innovative ideas and solutions from suppliers and LGP managers alike and different ways to obtain policy goals from the money that is available. Procurement faces the challenge to argue the case for investment. It needs to look at how savings can be generated through the contract life, not just at contract award time. It requires much better contract management than often seen in the sector. Equally, LGP manager need to seek innovative new approaches from suppliers to deliver the right outcomes at much lower cost. “Innovation procurement” is likely to be an increasingly important area. It’s about continuously improving and re-evaluating how things are procured to deliver best outcomes and value beyond cost savings.
4. Capability & Competence
Procurement in local government (or the government sector in general) is regulated by legislation. With a focus on compliance and legal aspects of the tendering process, procurement is not yet perceived as a partner of the business. Rather it is mostly perceived as a policing function and a stickler for rules. Procurement acts in a reactive way and is often not involved until specifications have been defined. It’s purpose is derived from and around contracts rather than commodities and category management. With peak moments being the expiries of contracts, there is no continuous process to manage internal and supply market development and opportunities. Attracting new talent into the sector is likely to be a core focus for procurement functions as the skills for procurement professionals change. Softer skills will be required as procurement staff increasingly need to influence those outside the procurement function. It’s about recruitment rather than training and development as softer skills are much more difficult to teach.
5. Collaboration & Shares Services
Collaboration amongst councils is often difficult from the contract expiry level. Promoting the procurement function and with-it collaboration will determine how successful and respected the procurement will be in the organisation. Promoting the function as well as collaboration will for many be a foreign concept and what should be promoted or marketed? – Value, relationships, services and benefits of course. The procurement role is a key bridge between the organization and its supply base; procurement knows how to collaborate with internal and external stakeholders. LGP manager must now focus on collaborating with other council procurement teams to unleash the vast potential of cost savings and maximized efficiencies. Collaboration doesn’t mean it is simply about driving harder negotiations on a transactional level, collaboration uncovers savings opportunities through closer engagement with suppliers and participating councils. Collaboration stimulates healthy and constructive competition, while accounting for all participating councils needs and objectives. Beyond collaboration there might be a shared procurement services opportunity growing likely to be led by those who drove value through collaboration first.
6. Leadership & Culture
At board level the lack of acknowledgement of procurement as a high potential partner to achieve sustainable and not just compliant outcomes is puzzling and has procurement remaining to be the ‘Cinderella’ in comparison to other council core areas. Despite of its high profile and potential, procurement has to constantly fight for recognition. Currently procurement itself does not feel it is responsible for the entire end-to-end process including category and contract management. It needs to develop the leadership skills needed to act as a strategic partner to the business. Perhaps the biggest challenge is that in most cases a behavioral change is needed. If LGP managers want to act as strategic business partners they have to take ownership, be proactive and constantly ask questions and look for improvement opportunities. Leadership or ‘tone at the top’ is an essential element in building an organisational culture in which procurement is acknowledged as a core component of the organisations innovation and process-driven strategies to reduce costs, increase efficiencies and make advancements. Effective leaders must communicate behavioral expectations to staff and demonstrate values. When procurement is aligned with board level vision and is empowered by technology the entire organization will reap the benefits.
Procurement Technology brings enormous benefits from improving visibility into spending and advancing social goals to reducing process times and enabling better research. Yet the local government procurement sector has yet to embrace procurement technology available to improve transparency, collaborate more effectively with suppliers and other councils, increase competition and reduce costs. An investment in technology is necessary and in some case long overdue. What’s holding them back is outdated and overly complicated business workflows. Legacy software systems, spreadsheets and email chains as well as manual processes make performance difficult to measure and collaboration between councils, with stakeholders as well as with suppliers an almost impossible undertaking. As local government procurement managers need more time to manage pro-actively, agile technology around contract management automation will move them away from tactical administration and accelerate delivering core business, service programs and hard-dollar as well as soft-cost savings.