Failure & F**k-Ups Archives - Page 5 of 11

Public Sector, UK, Failure & F**k-Ups, Fraud and Corruption, Europe, Private Sector

What’s In Store for Bad Buying in 2023?

As we enter 2023, what do the prospects for Bad Buying look like? No doubt, we will continue to see regular procurement and contract related fraud and corruption. It will be greeted on discovery by the CFO explaining that “it was a very sophisticated fraud”. Usually, that is simply not true. What the CFO (or CPO) means is “our processes were rubbish and wide open to criminal exploitation, but I can’t say that because you might question why I’m paid a six or seven figure salary to manage this shambolic process”.

Talking of fraud, the long-running controversy over PPE procurement in the UK will continue in 2023, with an announcement this week that the government is going to court over the supply of gowns from supplier PPE Medpro. One paragraph in the Guardian report on this leapt out at me.

“The legal claim states that the DHSC had paid PPE Medpro the full £122m for the 25m gowns by 28 August 2020. This was before any of the gowns had been inspected in the UK, and before all the gowns had arrived. Health officials rejected the gowns after a first inspection at the NHS depot in Daventry on 11 September 2020”.

I know the situation was desperate back in 2020, but to pay the full contracted amount before inspecting the product at all – it just seems incredible that any procurement professional would agree to that. Anyway, more to come on PPE this year, no doubt with more discussion of links to politicians, dodgy suppliers and billions of wasted money.

Moving on from PPE, the public sector (in every country) will continue to struggle with complex and technologically complex procurement in areas such as Defence and major IT programmes. We can hope that the UK Ministry of Defence sorts out the long-running Ajax armoured vehicle fiasco, another programme with potentially billions of pounds on the line. The latest comments in December d uring a House of Lords deb ate seemed a little more positive but let’s wait and see. It’s not just the UK of course. Just before Christmas, we saw reports in the German press and o n the Jane’s website about some of their army’s vehicles following a major training exercise.

“Germany suspended procurement of the Puma infantry fighting vehicle (IFV) on 19 December after 18 of the vehicles broke down in an exercise preparing for their first assignment to the NATO Response Force Very High Readiness Joint Task Force (VJTF) in January, when Germany takes over command of the force”.

But the UK MOD seems to have issues with low tech procurement too. Recent reports suggest that the organisation still hasn’t got to grips with maintenance of military housing, a long-running example of Bad Buying on several counts. It started with a dreadful PFI programme that cost the taxpayer billions, and now the relatively new contract for looking after the homes is not delivering satisfactory outcomes for those who live there. A contract management failure maybe?

Of course, it isn’t just the public sector that demonstrates Bad Buying, although the private sector is better at keeping failures hidden. I would argue that the professional services market (audit, consultancy, legal services) demonstrates a long-term failure of markets, procurement and buyers generally. Last month, the 100 Group, which represents the Finance Directors of some of the UK’s biggest firms, wrote to the “big four” audit firms to complain about rising fees. To which we might respond – well, you are the clients, why don’t you do something about it?

In truth, there is an oligopoly in the audit market. So the firms can get away with saying they are “investing in audit quality,” whilst in practice the extra revenue is channelled into paying their partners more and more each year – £1 million plus now in large firms. EY also increased the salaries of its junior accountants by 13% recently – nice for those people no doubt, but we all know that it is the clients who will pay for that generosity.

To some extent, legal service and strategy consulting has gone the same way – higher and higher salaries for firm’s partners in particular, whilst clients get exploited. Yet too many buyers are unwilling to use approaches that might mitigate cost increases, such as applying real competitive pressure, negotiating hard and skilfully, managing individual assignments more carefully, or looking at alternative suppliers to the top (and most expensive) firms.

Anyway, I’ll leave you with four thoughts for the New Year – maybe they could form the basis of some procurement new year resolutions for your organisation!

Check that you have everything in place to minimise the risk of fraud and corruption in your procurement activities. You can’t make it 100% criminal-proof, but you can make wrongdoing much more difficult by applying reasonably basic processes, systems and policies.
Competition is still the best mechanism invented to drive positive outcomes and outputs from suppliers and contracts. Use it well and widely.
Be a little cynical – well, maybe more than a little – about what suppliers promise you and the claims they make about their products and services, particularly in areas such as technology.
Organisations that are “good at procurement” don’t just focus on the skills and knowledge of their procurement teams – they understand that a wide range of people in the organisation need to understand their own role in the end-to-end process. They must also have the right commercial skills to play their part in procurement success.

January 9, 2023/0 Comments/by Peter Smith

Central Government, Public Sector, UK, Failure & F**k-Ups, Health

Gareth Davies, NAO Supremo, On Efficiency, Standards (and Procurement)

Last week, Gareth Davies, head of the UK’s National Audit Office, gave a speech to members of parliament and civil servants. He drew on the experience of NAO in carrying out dozens of reviews over the last three years to highlight “three big lessons for public spending in large scale emergencies”. All three have implications for and are related to procurement in some sense.

“Firstly, the importance of maintaining basic standards of public accountability even in a crisis, and restoring normal controls as soon as possible. 

Secondly, the central role of good quality data in responding quickly and targeting resources accurately. 

And thirdly, the need for a new approach to improving the country’s resilience to large scale emergencies, which minimises the impact on current and future taxpayers”.

Under the first heading of basic standards, he accepts that there wasn’t time to carry out full and normal processes in areas such as PPE procurement or furlough loans. But there was then no excuse for government failure to apply the safeguards of transparency, for example in terms of large PPE contracts.

“It was therefore a concern to see significant delays to government publishing the details for some (often very large) contracts that had been awarded without competition. It is not an onerous task to publish this information promptly, and it is a vital one”.   

Timely accounting is also key, and he points out the worrying situation in local government where a third of councils at the end of September 2022 had still not published their accounts for the year ended March 2021! Given the waste of money / fraud /massive incompetence that is now coming to light in councils such as Thurrock, Croydon and Slough, timely accounting is “critical to protecting taxpayers and maintaining trust in public spending”.

Under the good quality data headline, he praises some aspects of the NHS App as a good example of the benefits that data can bring, but government has to do more, and progress has been too slow. There are three key issues that can help drive greater efficiency:

Data standards: essential for efficient use of data, held in a consistent way
Data quality: for accurate and reliable results and maintaining public confidence 
Data sharing: so that citizens don’t have to repeat themselves

Finally, resilience – “how is government ensuring that our country is resilient enough to withstand costly crises, without placing an unaffordable burden on taxpayers? And what will good value for money look like in future pandemic planning?”

We need more flexible approaches, he says, but above all we need a more considered approach to risk. For instance, given climate change, there are major issues around water supply, but NAO found no convincing plans to stop the south of England running out of water by 2040! (That’s a worry for a vegetable grower like me even with 8 rainwater butts / bins dotted under various drainpipes and around the garden…)

“To be truly resilient, government must plan for scenarios that it previously dismissed as extreme, and revisit its assessments of how likely they are to happen. This is crucial if we are to achieve value for money, not just in the short term, but for future generations.” 

His final remarks on efficiency in government spending more generally focus mainly on evaluation and evidence. Basically, government spends money and has little idea of whether it does what it was supposed to (or achieves anything at all in some cases). Here’s a shocking fact. In 2019, – “out of the government’s 108 most complex and strategically significant projects, only nine were evaluated robustly. Seventy-seven of them had no evaluation arrangements at all”.

There are other good points around efficiency. Understanding and managing demand for services is key; and we need more and better investment in digital services (with the caveat that projects are consistently over-optimistic about implementation in the public sector). Davies wants more focus on the nuts and bolts of efficiency. “We have seen too many high-level ambitions fail to be translated into concrete plans, adequately resourced and tightly-managed. The skills and organisational discipline required for this are well understood, but they are not always valued and prioritised in government.” 

Indeed. I still wait to see the first appointment of a Permanent Secretary who has risen through roles in procurement, commercial, project management and delivery, rather than the traditional policy and private-office-heavy route. That would be a real indicator that government is taking these messages seriously!

December 13, 2022/0 Comments/by Peter Smith

Failure & F**k-Ups, UK, Public Sector, Health

A Mone About PPE (Again!)

Reports in the Guardian last week suggested that Michelle Mone, business woman and member of the British House of Lords, benefited directly from PPE contracts which the government awarded during the pandemic.

Mone and her husband had denied that they gained personally from £200 million worth of PPE contracts, following disclosures that they lobbied politicians including Michael Gove for PPE Medpro to be awarded the business. That enabled the firm to secure a place on the government’s “VIP lane”, which prioritised certain companies that were offering to supply PPE. Many of the firms in that group were recommended by politicians, although others came via recommendations from civil servants, advisers or other prominent people.

Mone’s lawyer last year said she “did not benefit financially and was not connected to PPE Medpro in any capacity”. But already there was evidence that she was involved, and now leaked documents produced by the bank HSBC appear to show that her husband, Douglas Barrowman, was paid at least £65 million from PPE Medpro. Funds were then distributed via offshore accounts and trusts, and some £29 million of that ended up in a trust benefitting Mone and her children.

Separately, PPE Medpro is being investigated for fraud by the National Crime Agency. It is not clear if that is linked to the government’s dispute with the firm over the quality of gowns supplied as part of the contract, which did not meet quality standards (according to the NHS).

Leaving aside the specifics on Mone and Barrowman, who appear to encapsulate the moral bankruptcy of many of the PPE “middlemen” and agents who exploited the pandemic to make excess profit, the case does highlight again some of the weaknesses in PPE procurement. It is easy to be wise after the event of course, but with billions made by some very dodgy people, it is not unreasonable to ask what went wrong. Here are a few of the key issues – we have previously discussed much of this of course!

The PPE procurement team was slow to ensure that the specifications provided to suppliers were exactly what NHS users needed. That meant it was not the suppliers’ fault that some unusable goods in the early days of Covid did meet those specifications. In other cases, it may be that the supplier was at fault, but the waters are muddy. And whilst time was of the essence, surely samples of items should have been provided before huge consignments were shipped and paid for. It also took a while to get basic supplier due diligence in place.

The idea of having some sort of prioritised potential supplier system to evaluate offers was in itself reasonable, given so many firms were approaching the buyers. But it should have been a totally transparent process, with the “rules” in the public domain, and it should not have been based primarily on “knowing the right people”. A simple pre-qualification process with a handful of questions would have worked better than what was put in place. I am also amazed that no senior civil servant spotted that the focus on MPs’ mates would look unfair or worse once exposed. The “Private Eye” test (how will this look on the front page of the Eye / Guardian / FT) should have highlighted the issue here.

Again, whilst acknowledging the pressure to secure supply was incredible, I don’t understand why buyers didn’t delve a little deeper into the cost structures of the suppliers and establish how much margin was being made by those intermediaries. That would have enabled at least some attempt at negotiations to moderate the margins. The lack of curiosity there fuels the conspiracy theories that the buy-side was complicit in helping firms and individuals to rip off the public purse. Just saying “oh, we paid the market price” – which was in effect itself determined by whatever price was offered by those exploitative firms – was not good enough really.

Finally, I have still seen no real explanation of why the estimates of PPE requirements early on were so far out and led to the huge over-ordering of stock, with at least £4 billion worth wasted. That is still costing us now, as PPE is sold off cheaply, or even burnt, whilst we still pay millions for storage. It may be that there was nothing malicious or incompetent behind that, but it would be good to understand how we went so wrong. After all, that was a clear error, one that cost the taxpayer billions.

November 29, 2022/0 Comments/by Peter Smith

UK, Failure & F**k-Ups, Private Sector, Retail

Waitrose Denies that New Systems are Causing Stock Issues

We write pretty regularly about public sector procurement disasters, probably more than we cover private sector failures. When I was researching and writing the Bad Buying book, I found it easier to find stories about government entities than those featuring major private sector firms.

There are a number of reasons for that. Some areas of government spending – such as defence – are just very difficult and complex. So it is a challenge in any and every country to execute that type of procurement well. There is also the political factor, politicians who want to leave a “legacy” for instance, or who want to pursue a certain policy despite the fact that there is no procurement solution that is likely to work.

But the biggest reason is probably just the nature of government, meaning there is a higher probability that a disastrous IT system implementation will get into the public domain. So we find out about numerous tech failures in the UK public sector, going back to the DSS ICL “Benefit Card” fiasco, to the ongoing Home Office/Police Airwave failure.

So it was interesting and unusual to see a high profile private sector firm mentioned in the press recently for a significant IT problem. According to the Times, Waitrose, the upmarket supermarket chain and part of the John Lewis Group, has seen problems with stock management in recent months, which is being blamed on the implementation of a new Oracle / JDA ERP system.

But it is an odd example, because although the Times report was quite detailed, Waitrose has strenuously denied that there is a problem. So the newspaper says, “The idea is to replace the partnership’s antiquated systems with the Oracle system. But during the switchover, when the two systems have to temporarily “talk” to each other, the Oracle system has been producing incorrect numbers. Every time a new part of the system is introduced, more problems emerge… “

The report says that product availability has slipped from 3/94% to around 91% compared to an industry average of 92%. Well, to be honest, that does not sound like a major problem, although many readers did comment on the article to back up the claim, complaining about lack of product in their local stores. Particularly cheese …

Waitrose then denied that there is a particular problem or that there are system issues, claiming that their product availability is still better than several major competitors. But one point which did make me wonder was the statement that the implementation has been ongoing for 6 years now. That does seem like a long time – even given Covid – to get a new system in place.

Coincidentally, I heard from a friend the other day about another organisation in a very different industry (but one that will be well-known to most readers here) that has had major Oracle implementation problems this year. Now clearly many ERP implementations do succeed, or Oracle and SAP would not have grown to be two of the largest tech firms in the world. But it is also clear that things can go wrong.

I included a salutary tale in the Bad Buying book, all about FoxMeyer, a US pharma distributor. That ERP implementation appeared to set off a train of events that ended up with bankruptcy, and illustrated a number of common failings in IT disasters. The case study seemed to show defining the requirement wrongly; relying too much on external consulting-type expertise for the implementation; several suppliers sharing unclear accountability and blaming each other when things went wrong; trying to integrate different systems that did not really want to integrate; and poor programme management. We all probably recognise some of those warning signs.

So whatever the truth about Waitrose, if your organisation is planning or going through a major systems implementation, be very careful. Get the right expertise lined up, including at a minimum, some internal “intelligent client” resource even if you are using consultants for much of the work. Be cautious, do your risk management properly, define accountabilities, never assume different systems will integrate easily (e.g. consider the data architecture), plan carefully, put the governance and reporting in place….

It is a long list, so good luck!

November 11, 2022/by Peter Smith

Failure & F**k-Ups, UK, Public Sector

Purchasing Cards – Open to Fraud or Better than Purchase Orders?

An interesting procurement story emerged recently, but it got somewhat lost in the focus on the UK “not-a-budget-just-a-financial-statement” a couple of weeks back, which gave tax cuts to deserving premiership footballers, bankers and professional services firm partners.

The Labour Party investigated the use of corporate purchasing cards in the UK’s Foreign Office, the government department that was until recently run by Liz Truss, now our esteemed Prime Minister. That threw up all sorts of interesting expenditure, and Emily Thornberry, shadow minister, send a long letter outlining the issues and questions. At least one purchase appears to have been fraudulent and is under investigation. But Rayner highlighted an overall increase in card spend of 45% and various other items that on the surface look dodgy.

As Sky News reported, “The Foreign Office spent more than £4,300 of public money on two trips to the hairdresser and nearly £1,900 at the Norwich City FC shop when Liz Truss was at the helm, documents show”.

I can’t comment on whether transactions were legitimate of course. But there is a history of misuse of cards in the Department, as I featured in the Bad Buying book. In 2019, a Foreign Office employee appeared at Southwark Crown Court in London. She was accused of blowing nearly £20,000 on government credit cards in a month-long “gambling binge”. Laura Perry was alleged to have made almost 250 transactions over 30 days with an online casino, using Foreign Office purchasing cards. She also allegedly used a card for a personal restaurant meal. She had been given the cards to book travel tickets, pay for accommodation and make payments for other costs incurred by government and visiting dignitaries.

She claimed she had accidentally mixed up the card with her own – which can be done – but ultimately, she pleaded guilty to stealing £2,223. But she was cleared on the £20,000 accusation relating to the gambling, claiming it was her ex-boyfriend who used the card for that purpose.

However, cards do have advantages, not least in that they provide a better audit trail than expenditure made via requisitions, purchase orders, or simply the old “phone call to the supplier” method! Ironically, card spend gets a bad press in part because it is transparent, and we have to be careful before jumping to conclusions. Any major card scheme will see some exmaples of inappropriate purchases, but that does not invalidate their use and benefits. Here is an extract from “Bad Buying”.

“Some years ago, I talked to a logistics manager based in the UK Ministry of Defence’s Head Office. He told me he had not long returned from Afghanistan, where he was working as a logistician in a big military camp there.

We talked about the need for buying processes to be flexible and for buyers and logistics people to be able to react quickly in military situations. The use of the Purchasing Card came up, and he explained there had been a bit of an internal furore when finance had looked at expenditure on the card in use at the Camp. One invoice related to expenditure on a range of golf equipment. That looked very strange, possibly fraudulent.

But it wasn’t. He explained that opportunities for rest and relaxation were limited for the troops in Afghanistan. Not many friendly bars, you couldn’t just go off for a run through the hills or take a trip to the beach. So, someone had the bright idea of buying some golf equipment and rigging up practice nets. Even non-golfers were getting into it, with more expert players offering lessons. The golf kit showed up on the Card bill, and looked odd, but most people would agree it actually was an appropriate and intelligent use of public money.

As a corporate executive, and on behalf of the firm, I’ve bought retirement presents, flowers for staff to celebrate a wedding or birth, strange items to be used on corporate away-days, booze, and many items that would have looked odd on that card bill. But all were justified and for the organisation’s benefit, not mine. Another case saw a government body chastised for spending money at a horseracing venue. But that was explained as the fees for a legitimate business meeting, booked in the hospitality suite on a day when no racing was taking place”.

So P-cards can be used positively in the public sector. Thornberry’s other issue is that the Foreign Office refused to answer some of her questions about the spend, saying the information could “only be obtained at disproportionate cost”. That is not acceptable – but we shouldn’t throw the P-Card baby out with the bathwater. Managed properly, cards have a useful role to play in the procurement armoury.

October 1, 2022/0 Comments/by Peter Smith

Failure & F**k-Ups, US

Fat Leonard Escapes – then Recaptured! US Navy Procurement Fraud Back in Headlines

One of the major case studies in my Bad Buying book is all about Fat Leonard, (Leonard Glenn Francis), the 300lb (136kg) Malaysian businessman who bribed large swathes of the US Navy in the Pacific. In return for giving his firm work providing various services to ships in port, he provided cash, extensive hospitality, lavish dinners and favourite prostitutes to American naval staff.

That included procurement professionals and officers right up to Admiral level, some of whom are now going to jail. Even when whistle-blowers tried to alert senior naval staff, they hit a problem – the folk who received their allegations were being paid by Leonard too! It was one of the most extensive examples of endemic procurement-related corruption ever seen in modern times. As the BBC reported:

Prosecutors say he overcharged the navy to the tune of $35m (£30m) and plied officers with cash, gourmet meals, cigars, rare liquor and sex parties in luxury hotels…. Dozens of US naval officers have also been implicated. Four have been convicted so far and at least 27 other contractors and officials have pleaded guilty to accepting bribes.

Last weekend I was preparing for the US National Procurement Institute conference next month in Atlanta. The NPI is government-sector focused, so Fat Leonard is one of my stories for the “Bad Buying” session I’m running. I googled him just to check on a couple of facts. To my surprise, there were dozens of brand new news items about him. And that is because he had skipped bail and disappeared!

He admitted bribery and corruption back in 2015 and had been co-operating with prosecutors, helping to convict a range of naval staff in recent time. His own sentencing was coming up soon, but he was allowed to be detained at home in San Diego because he had been in poor health, including suffering from kidney cancer.

But on 4 September, police went to his house after they detected “problems” with the GPS ankle bracelet that he was supposed to wear. The problem was that it had been cut off, and Leonard had disappeared. “Upon arrival they noticed that nobody was home,” US Marshal spokesman Omar Castillo told reporters at the time, demonstrating incredible powers of detection. Neighbours mentioned seeing removal vans at the house over recent weeks – you would think someone might have worked out something was going on?

Anyway, a global Interpol warrant has been out for his arrest since then, and yesterday (Wednesday 21^st September), the 57-year-old was arrested at Simón Bolívar de Maiquetía airport near Caracas by Venezuelan authorities. Interpol says he entered the country from Mexico via a stopover in Cuba. Quite the tour of central America… But now he is due to be extradited back to the US, where we might assume his sentence will be harsher because of his escape attempt.

Questions remain about how many more naval staff will end up in court, and the other question is who will play Leonard in the inevitable film of his escapades? Orson Wells or Marlon Brando in their later years would have been perfect. Maybe Antonio Banderas in a fat suit?

But to finish on a serious note, there are relevant learnings for any organisation when we look at the Fat Leonard case. The US Navy processes for awarding and monitoring the contracts in question were clearly flawed, and whistleblowing must be managed properly. As I said in Bad Buying case study:

“If organizations don’t make it easy for honest people to expose what is going on, and have a failsafe route for concerns to be reported and acted upon, then there is a real danger that corruption will become more and more embedded, as in this case. Other learnings around the buying process, monitoring of supplier pricing and billing are key; but whistle-blower protection is a relatively cheap and easy way of reducing the chance of shocking events like this.”

September 22, 2022/0 Comments/by Peter Smith

Failure & F**k-Ups

Drive for Efficiency Savings in Government … Again …

Today, the word “historic” is used in the context of a tasty sandwich, or a decent performance by the latest indie band. But the last few days in the UK has without a doubt deserved that description. It has been probably the most historic week of my adult life anyway.

The political events themselves were significant, with a new Prime Minister chosen and taking up post, and the Conservative Party announcing a huge public spending increase, one that would once have been seen as an extreme “left wing” spending policy. But that was overshadowed by the death of Queen Elizabeth – not surprising given her age but shocking in that her final decline was so swift.

That has left many of us feeling more emotional than we might have expected, and of course our sincere condolences go to her family and friends. She over-performed (by some distance) in her job for 70 years, which is not something many can say.

But soon, the more prosaic but critical economic and social issues the UK faces are going to rise back to the top of the news pages. Can even more government borrowing fund additional spending to offset energy price rises, without subsequent tax rises? Or can the government find significant “savings” to offset the spending?

In terms of savings, the signals during the recent contest to become Prime Minister were not promising. This was our new PM, Liz Truss: “As prime minister I will run a leaner, more efficient, more focused Whitehall that prioritises the things that really matter to people and is laser-focused on frontline services … There is too much bureaucracy and stale groupthink in Whitehall”.

So just the traditional vague remarks about bureaucracy, “reducing waste” and attacks on “Quangos”. The problem is that the largest “quangos” are organisations such as the DVLA and the Passport Service that provide services the public rely on. We’ve seen the negative reaction when their performance falls; it seems hard to believe that the government can slash the cost of these organisations without major impact on customers. In another speech, Truss suggested a regional approach to civil service pay. It’s not a daft idea actually, but she withdrew it quickly under challenge, a sign that even many decent ideas run into opposition.

Another frequent and ill-judged suggestion is more centralisation of procurement. I would argue that all this has done over the years is led to more “framework” contracts being put in place by the collaborative procurement bodies. But those organisations have a fundamental conflict of interest between maximising their revenue, versus driving better overall value for the public purse. Their frameworks are then misused in a manner that certainly does not lead to value – choosing suppliers without competition, for instance.

However, there are ways of saving money, although none of them are easy. Introduce stringent controls on consulting spend and demand a focus on defined outcomes and competition to choose suppliers every time. Insource some services (children’s social care, for instance) that are failing both financially and performance-wise. Stop messing around with more collaborative procurement in the police service, bite the bullet and move from 43 “county” forces to 9 or 10 regional forces (every Chief Constable knows that the current system is crazy). Cancel HS2. Sort out the increasing unfairness (to private sector workers) of index-linked public sector pensions … and I’m sure there are “savings” in MOD procurement, but better people than me have failed to realise them.

Indeed, nothing that might release significant benefits will be easy to do. After over 30 years of efficiency reviews, external experts, CPOs recruited from top private sector firms and so on, there is little in the way of “low hanging fruit” these days.

So Prime Minister Truss and her team will have to think harder and act more radically if they really want to reduce the cost – and improve the effectiveness – of the public sector. I do wish them luck, as a taxpayer, but I’m not holding my breath.

September 11, 2022/0 Comments/by Peter Smith

Failure & F**k-Ups, Issue

Mars Bar Shortages – Is This The End Of Civilisation?

Never mind Ukraine, the energy and cost of living crisis and the national political paralysis in the UK – a real crisis has hit the headlines. The shops are running out of Mars Bars! I spent the first nine years of my post-Uni career at Mars in Slough. It was a great firm, and still is, I believe. But it seems hard to accept the official company line that “high levels of demand” is the cause of these shortages.

Various press reports suggest that many supermarkets and wholesalers are out of Mars Bars, with some shortages reported for other products from Mars Confectionery such as Snickers and Twix. (Personally, when I had a free choice every morning in the office, I chose Twix over Mars, and actually also preferred Revels, Topic, Maltesers and of course the finest confectionery product ever invented – Plain Bounty).

Looking at this issue, it’s worth understanding some of the core principles of Mars and indeed the confectionery industry. Most purchases of Mars Bars are “impulse”. Now things have changed a bit over the last 30 years, with a much higher percentage of products bought from supermarkets rather than corner shops, newsagents and sweet shops (remember those?) But even supermarket multipacks are quite likely to be the sort of item that isn’t necessarily on the shopping list, but just gets picked up on impulse.

Other items are “demand” items – customers demand them and will go to another shop if they can’t find it in their usual place. Milk, tea bags, vegetables, maybe beer these days… So if you are selling an impulse item, “availability” is the whole basis of your sales strategy. Forrest Mars Senior (now deceased) was obsessed with getting Mars products on sale and prominently displayed in every possible location where a customer might feel a bit peckish, or fancy a treat. He will be turning in his grave at these stories of out-of-stock products in major retailers. So what has caused the problem?

I think we can rule out the demand factor, whatever the firm is saying. Confectionery sales are correlated with temperature in the sense that heat reduces demand quite significantly. We’ve had the hottest summer ever in the UK. So although it has cooled down a little in the last week or two, I just don’t buy the claim that somehow consumer demand has overwhelmed the Mars factory. So what else could it be?

Well, it could still be temperature related. Chocolate is very temperature-sensitive stuff, as you will know if you’ve ever left a Mars Bar in your car, handbag or jacket pocket on a hot day! Not pleasant… It may be that the super-hot temperatures we have seen has somehow disrupted production. I seem to remember the Chocolate Room (yes, that is a real thing in the Mars factory) could overheat at times. Perhaps production was reduced in July because of the 40C temperatures and that is feeding through to the shops now? Or maybe finished stock got heat damaged?

Another possibility is supply chain issues – a lack of raw materials, or perhaps even packaging (I speak as the ex-Head of Packaging Buying in Slough). But I suspect that we would have seen more general industry issues if this were the case. Mars has always been one of the best firms in the sector in terms of procurement, and has followed a more “partnership” approach than many competitors. That is in part because of “mutuality” – one of the famous Five Principles of Mars.

It means that everyone who interacts with the firm should benefit from it and whilst we occasionally joked about that when we were in tough supplier negotiations, basically it did matter. So I find it hard to believe that Mars would be finding the supply chain more difficult than Cadburys, Nestle or Hershey. However, Hershey has also warned of shortages, so maybe there is something in this hypothesis.

The critical nature of raw materials also means that if there were shortages, I would expect Mars to pay more than most would to preserve supply. As well as the availability and impulse issue above, Mars would be terrified that a 200-Bars-a-year customer might try Cadbury’s Star Bar in the absence of their favourite and think “oh that’s nice”. OK, that’s unlikely as Star Bar is a disgusting “rework product” – maybe I’ll explain that another day. But you get the point.

Could it be staff sickness or shortages? I doubt it. The factory is highly automated now and Mars pays well above the norm so it seems unlikely. Equipment breakdown? Again, Mars is very smart, has top engineers – I just can’t imagine that. Perhaps a commercial dispute with the supermarkets is the issue, as we saw recently with Tesco versus Heinz and Mars Petcare (Whiskas etc). Well, none of the retailers have said anything and the fact that the wholesale channel is also reporting difficulties seems to suggest this isn’t the case.

The only other possibility I can think of is some quality problem with a large batch of product. Whilst Mars QA and testing is second to none, it is always possible that a dodgy batch of skimmed milk or freeze-dried albumen powder got into the production process somehow. If it was only discovered some days or weeks later, maybe product had to be scrapped? It seems unlikely but it is possible.

Anyway, someone must know. Drop me a confidential note if you know more. In the meantime, Cadburys Caramel, Rowntree’s Toffee Crisp, and Kit Kat (preferably plain chocolate) are the substitutes of choice.

August 30, 2022/0 Comments/by Peter Smith

Failure & F**k-Ups, UK, Private Sector

Professional Services – Procurement Has Failed

Unfortunately, procurement as a function has failed. Not everywhere, not in every organisation, but across some huge and important markets, we have failed.

Reports last week in the Evening Standard – and elsewhere – lead to that unfortunate conclusion.

“UK partners at accountancy and consulting firm PwC were paid an average of more than £1 million for the first time last year. The London-based giant said consulting revenues were up by a third reflecting “exceptional clients demands to challenges and opportunities on multiple fronts”.

Group profits grew 24% to £1.4 billion in the year to end June and profit per partner averaged £920,000, up 12%. This was topped up by an average of £105,000 per partner in the firm of a distribution from the sale proceeds of PwC’s global mobility and immigration arm …”

And there are almost a thousand partners in the UK; 944 to be precise earning this huge amount. But they’re not entrepreneurs. They have not built a business, they don’t run a business and most of them are looking after relatively small teams, not the thousands of people many CEOs manage. They might create some value for clients, but I don’t think you can compare their work to being CEO of even a fairly small business, or being a business owner and entrepreneur trying to build a successful enterprise. Yet somehow, they are extracting a million each, every year, from the economy.

Fiona Czerniawska and I wrote “Buying Professional Services – How to get value from consultants and other professional services providers” back in 2010. It remains I believe pretty much the only book focused on that specific area of procurement. Our focus was consultancy, audit and legal services, and we tried to lay out how buyers could achieve better value in these tricky markets. Procurement has a relatively short history in these spend areas – 30 years ago there was little procurement involvement in these categories even in the largest organisations. So you would hope that the more recent involvement of the profession would have helped make these markets more competitive and we would see better value for users.

But year after year, we see audit scandals, unsatisfactory consulting work, and yet the earnings of partners seems to just go up and up. Surely, if procurement had really got to grips with these spend categories, we wouldn’t be seeing this? It is even more startling in the legal world, with Freshfields partners hitting the £2 million mark this year.

Clearly, there must be market issues here as well as questions of competence. In the audit area, the greater regulation of that profession, put in place with good intent to raise quality, has succeeded in also raising the barriers to entry. So it has been very difficult for smaller firms to challenge the big four.

In the consulting and legal world, there are more complex factors at work. I believe that many CEOs and CFOs are happy to pay high fees and see partners earning so much, because it helps them justify their own salaries. The executive remuneration consultants ( another highly questionable branch of the professional services world) can say to a Board, “if a PWC partner earns a million, you better pay your CEO at least that”.

Another problem is that procurement often comes up against the user of professional services who doesn’t want to see competition and just wants their favourite law or consulting firm, probably engaged on a day rate basis so the user doesn’t have to think too hard about outcomes or deliverables. But we all know how important competition is to moderate costs; too often we still don’t see that in this world. And ongoing “contract management” of assignments is often dreadful or non-existent. How much of a partners’ earnings can be traced back to “land and expand” strategies, for instance, or projects that run on and on beyond their supposed delivery dates?

The hollowing out of businesses (and public sector bodies) over the years in the cause of efficiency is another factor. Downsizing and outsourcing has left organisations unable to resource new projects or anything out of the ordinary – so the consultants get called in. For instance, PWC partners must be delighted to hear that the UK Tory government wants to cut civil service numbers by 25% – that will mean yet more lucrative work for them! Which will no doubt be based on a Crown Commercial Services framework contract with consulting firms that when put in place made little attempt to drive real competition or push the firms into offering better value.

The growing complexity of the business world is another driver, and we can’t blame the providers for that. Whether it is leading-edge technology or international patent law, organisations face more and more complexity and it is not surprising that external expertise has become more critical to success.

But even given that caveat, it seems clear that we have failed to get to grips with professional services procurement.

August 25, 2022/0 Comments/by Peter Smith

Failure & F**k-Ups