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Ask the Experts – Supply chain management

Saturday May 8th, 2010

By Paul Wright, PASS Consultant

PASS Consultant Paul Wright considers supply chain management, and why it is relevant to the public sector.

Q What is supply chain management?

Supply chain management (SCM) means very different things in different organisations. It can be used to describe logistics and transport, purchasing, warehousing and distribution, and operations. In general, it means considering not just the procurement of goods and services but also considering the sub-contracting and supply arrangements of suppliers, and the processes for delivery of goods and services to the end user (be it a public sector body itself or the general public).

In the public sector this means ensuring the proper collaboration of in-house provision, outsourced provision, partner organisations and bought-in goods and services to obtain best value for the public. The Office of Government Commerce (OGC) defines it as ‘the coordination of all parties involved in delivering the combination of inputs, outputs or outcomes that will meet a specified public sector requirement’.

Q Why is SCM important for the public sector?

Increased pressure on public sector finances means an increased need to do more with every pound spent. Rather than just focusing on reducing input prices, SCM is an opportunity to ensure that each pound spent achieves more than one objective – for example helping local sub-contractors remain viable by ensuring that they are paid on time, and ensuring that third sector organisations, SMEs and minority owned businesses have an opportunity to bid for appropriately sized contracts.

Furthermore, significant improvement in environmental performance cannot be achieved without ensuring that sustainability and environmental issues are tackled at all stages along the supply chain.

Q How does it differ from procurement?

In its most basic form procurement is about sourcing the right quality of goods and services at the right price. Supply chain management is about looking behind the immediate supplier and beyond the immediate customer to achieve greater value for money.

Increasingly, public sector organisations are realising that they have obligations and opportunities to use their budgets to tackle a number of objectives by managing the whole supply chain. As another example they can create local business opportunities by ensuring that contracted primary suppliers invite local businesses to bid for sub-contracting opportunities. By looking at how goods and services are provided to the end customer it is possible to influence the success of other initiatives such as recycling, local community engagement, regeneration and the uptake of services.

Supply chain management is not needed for the most basic procurements, such as provision of office stationery, but more strategic and more complicated projects can benefit from considering the supply chain behind the immediate supplier and beyond immediate use.

When outsourcing services or working with primary contractors it is useful to form an independent view of the supply chain risks, and ensure that suppliers have adequate plans to manage or cover all appropriate and foreseeable risks such as material shortages.

It is also worthwhile ensuring that suppliers and sub-contractors comply with appropriate legislation such as health and safety and environmental guidelines. Any non-conformances are likely to reflect on the standing of the commissioning body as well as the supplier.

By looking at what is happening down the supply chain we can help to create new opportunities to supply into the public sector, and increase the quality of delivery by improving communication with all contractors and clients. We can also make services more responsive by better understanding what is required and the capability of our suppliers to deliver.

The key elements of supply chain management are ensuing that decisions are made by the organisation best able to manage them, and that the commissioning authority has an overview of the activities undertaken on its behalf. This can be achieved by better communication and resource planning to establish a more competitive base of suppliers, and more innovative solutions delivering improved value for money.

Q Where can I get more information?

The OGC has published guidance (Supply Chain Management in Public Sector Procurement: A Guide, June 2006) and an interactive tool for public sector procurers (Supply Chain Management Wizard).

It is also useful to find out about the CompeteFor process (www.competefor.com) as an example of making opportunities available to businesses down the supply chain tiers.

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