As a professional procurement organisation, ‘Good Buying’ is very close to our hearts and we would hope that every time, in every way, we get the best value for our clients.
For most people though, the very thought of procurement would ‘bore their pants off’, although a new book by Peter Smith, called ‘Bad Buying’ demonstrates how without the proper and professional assistance even the largest companies and government can make a complete mess of things, although he expresses it in stronger terms. The book is an amusing and sometimes hilarious look at what has gone wrong in the world of procurement.
The average company spends 69% of its revenues on buying stuff from others. In total, this amounts to over £50 trillion, of which about £10 trillion is spent by governments, which frequently goes wrong. This leaves £40 trillion spend in businesses, which may severely damage a business when it does go wrong.
Take the example of KFC (UK) who, in 2012, changed their logistics supplier only to find they were storing all the product in an unregistered chilled storage unit, and when this was rightly closed by the local authority, KFC found a large number of their outlets could no longer sell the product they are famous for.
Another example is where using internal teams may be a false economy. Also in 2012, the TSB bank used the staff from another group company to move their IT off the servers of their former owners – Lloyds. This economy of going internal, rather than using industry experts, lost the company £330M. The CEO had to resign and there were questions in parliament.
Governments appear to be particularly bad, as costs all too frequently escalate (NHS IT and HS2 being examples in point), or they buy something that clearly does not meet the specification such as the fake bomb detector. Even when the specification is correct the most obvious is overlooked. An example from Ireland is where a specialist’s all singing and dancing printer was purchased and perfect. The only problem was it would not fit in the room where it was needed adding an extra €236,000 to the project, while remedial work was done, not to mention the delays in getting the printer into operation.
The book divides the mistakes into 2 main categories – Failure, and Fraud. These include some sub-categories, in particular people, we would call ‘numpties’ who simply lack one or more of the knowledge, capacity, capability or competence to complete the task. In government, many projects that have been driven by vanity, arrogance, and sometimes stupidity, all leading to costly failures. Finally, criminality, where the product is mis-represented, or procurement and the supplier team up to defraud the company.
Nearly all these costly issues are caused by an insufficient or inefficient process, that overlooks aspects of the procurement process, or post-procurement purchasing. Companies using competent professional procurement experts will almost always avoid these mistakes and obtain the best from their suppliers and will also provide their product or service with the most appropriate value for money.