Monday, October 11, 2010

Simple Shopper To Go Green?

I could do you 200 dozen, trade

Regular BOM readers will be all too familiar with the Simple Shopper and his staggering ability to burn our cash (see previous blogs gathered here). But Cam's procurement guru Sir Philip Green has clearly been rocked by what he's seen of the Shopper's operations:
"The process is shocking. There's no reporting, there's no accountability... You could not be in business if you operated like this. It would be impossible."
His report is refreshingly brief and punchy - very unlike the usual telephone directory reports we get from officialdom (see PS below). Among the real shockers he highlights:
  • £2bn pa spent on landline telephony, where the Shopper is overpaying by an astonishing £600 - £700m every single year
  • 400,000 hotel rooms booked every year in central London alone - Green estimates £50m pa could be saved by teleconferencing
  • £800 laptops bought for £2000 each
  • £20m lost on failure to break expensive central London lease - government property costs £25bn pa, but has not been managed on a commercial basis (especially taking opportunities to break expensive leases)
  • Failure to exploit HMG's AAA credit rating - a commercial operation with such a rating would insist its suppliers extend lengthy credit facilities (aka paying invoices later).
Green declines to give a figure for the total possible savings, but with the total procurement spend getting on for £200bn pa, we're clearly talking tens of billions annually. Savings that would go a very long way to closing George's fiscal gap.

So WTF hasn't it been done already?

After all, governments overpaying on procurement has been a problem for at least four centuries (see this blog for what Charles II's Clerk to the Navy Board - a certain Mr Pepys - had to say about it). And the Great Helmsman used to bang on all the time about how much his brilliant procurement reforms had saved us.

Sir Philip suggests it's because government buying is too fragmented - scores of different departments and quangos buying their own paperclips and not capitalising on their combined buying power. What we need is centralised buying in the hands of hard-nosed professionals such as... well, such as Sir Philip.

Yes, nice idea. So logical.

Except... hang on a minute... isn't centralised buying precisely what was supposed to have happened under the G Helmsman? Didn't he set up the Office for Government Commerce under the direction of hard-nosed (and expensive) professionals, specifically to wring better prices out of suppliers by exploiting scale?

Well, yes he did.

And yes, it flopped.

You see, what Sir Philip has failed to understand is that once you set foot in Whitehall, you aren't in Kansas any more. You no longer have people around you who are driven by the cost imperative. Instead, you have people who are driven by the need to defend territory, and to keep the politicos off their back.

Just what that means in practice was neatly highlighted by one of those politicians, responding to Sir Philip's report today. Margaret Hodge is the new chairman of the Public Accounts Committee - the grand-daddy of Parliamentary watchdogs and the very body set up by William Ewart G to ensure taxpayers get good value from public spending. And her response to Phil's report was to say he doesn't know what he's talking about - government is much more complex than running Topshop. Even for the Public Accounts Committee, it's clear that cutting costs is not the over-riding priority.

The fundamental problem here is that government does not do cost efficiency - never has and almost certainly never will. And the reason is very simple - unlike Topshop, the "customers" of government have no choice. Yes, of course they can replace the non-execs every so often, but there is no other shop just along the High Street they can simply take their business to.

So government isn't under the same pressure as Topshop to deliver value for money. Not the same pressure to screw their suppliers down to the last penny. So even where you have centralised buying - as for example in defence equipment - because the pressure isn't there, you never get the cost saving the private sector takes as a matter of course.

No, the only real cure for all the billions government wastes in its procurement programmes is not to coordinate purchasing programmes, but to stop government procuring stuff at all.

In other words to break it up. To downsize government drastically, and return many of its current functions (like education and healthcare) back to the private sector.

PS Today's Fairness report from the Equality and Human Rights Commission is in sharp contrast to Green's snappy offering. It weighs in at a totally unreadable 750 pages, with further vast research appendices on top of that. As always, Tyler has only looked at the pictures, and we may blog one or two of them in due course. But for now, let's just note Commission head Trevor Philips' latest suggestion for government action - to redress the unfair distribution of "moral and social capital". No, we don't know how government could do that either. Outside of North Korea, that is.

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