Steve Malone, managing director of Procurement for Housing, explains how technology can help the housing sector develop a world-class procurement function
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What do you think are currently the biggest misperceptions about procurement in the housing sector?
Over the past few years, researchers at the University of Liverpool have worked to study the role of procurement in the sector. Their work has revealed a significant number of misperceptions. Comments such as “compliance police”, “slows things down”, “we use them for OJEU”, or “I know my suppliers well enough” are often heard.
The problem is that the sector typically under-resources procurement – even though billions are spent with suppliers – and leaves procurement teams managing support services spend. Alongside this limited remit comes the limited performance measure – price reduction.
This means procurement teams in the sector are operating under constraints, which makes it impossible for them to offer their full value. The ability of a procurement function to analyse spend, identify opportunities, measure performance, create benchmarks and assess against external information, obtain and interpret data – and then share this knowledge so that an organisation’s performance is boosted – is underestimated.
How do you think the understanding of the procurement function may evolve in the coming years?
The Hackitt Review following the Grenfell disaster outlined that a key failure was the lack of common information across organisations. Procurement can and should help here. Teams can play a key role in areas such as product selection and de-selection; supplier management; and risk, category and contract management. The collapse of Carillion shows the particular value of risk management and market scanning and insight.
This evolving understanding also means an evolution at Procurement for Housing (PfH). We know that organisations now need more than just frameworks and sourcing solutions. Our research, as well as feedback from members, has highlighted that a focus on only cost-saving is of short-term value. Increasingly, organisations need to understand how they derive value from wider procurement and supply chain strategies. In addition, there is the desire for more flexible solutions to support resource and capability requirements.
That’s why we have invested significantly in developing a full-service offer that includes compliant sourcing, consultancy and technology solutions specifically for the housing sector.
What do you think needs to happen if the housing sector is to get full value from the procurement function?
Technology will need to be at the heart of how we deliver services – whether it’s to support the delivery of efficient services, to empower our procurement professionals with insight that they wouldn’t otherwise have, or to enable new services.
In its 2018 annual global survey of chief procurement officers, Deloitte highlighted the potential opportunities for organisations that embrace this evolution. Procurement data and analytics will impact on forecasting, risk forecasting, cost optimisation, process improvement and reporting. Yet only 3% of surveyed procurement leads believed their staff had the digital capabilities to capitalise on such opportunities and just 17% said they had a digital strategy. We need a change in culture to drive this agenda forward and realise its potential.
What examples have you already seen of procurement technology making a difference?
There are many traditional and transactional technologies having a huge impact, such as purchase to pay, enterprise resource planning, e-tendering and contract management systems.
Often, though, these systems are not integrated. Data quality and consistency is a particular challenge for procurement. This has led to a lack of visibility at a meaningful level, creating challenges in completing useful analysis.
At PfH, we’re determined to fully embrace technology and make the most of data – we have more than 800 members and collect about a million invoices a year across all housing spend areas, so there is huge potential for analysis. We now have a data warehouse that holds more than £1.2bn of transactional data. It also has embedded machine learning code, enabling the categorisation of transactions and the inclusion of additional attributes to enhance reporting.
We have developed a number of tools for members to benefit from this work, including price-checking and invoice audit, spend analysis, cost management tools and predictive analytics tools.
The data warehouse also enabled a major collaboration between PfH, Innovate UK and the University of Liverpool. Leading data scientists in AI, machine learning and predictive analytics pulled large volumes of data into the data warehouse, using algorithms to define and categorise data at a meaningful level.
The research team could then use predictive analytical techniques to look at spend and develop unique insights to help organisations improve purchasing, inventory and product selection.
What do housing sector leaders need to be doing tomorrow to capitalise on the growth of procurement technology?
Champion the change and provide support to reposition procurement and the use of procurement technology in their businesses.
AI and machine learning can support organisations in the initial phase, producing structured data to analyse, and the ability to stop incorrect pricing and to price-check and audit historic spend. It is then possible to compare core product lists and to optimise spending behaviour in line with negotiated contracts, optimising product choice and comparing spend with other, similar organisations.
Ultimately, it will be possible for organisations to predict and forecast optimal sourcing decisions. Through combining data with external subsets and indices, PfH could help to predict the optimum time to make a purchase or to carry out maintenance.
And if we considered groups of organisations collaborating and combining spending power in key areas, the data insights and predictive analytics would allow a more considered approach and the ability to influence the supply chain much higher up the value chain.
In short, procurement should shift from a transactional role in the organisation to one of ‘business advisor’ that is engaged in delivering the corporate business plan.