Mon, 20 May 2013Cost savings may be the driver “at heart” of procurement activities – but effectively procuring complex performance in services such as recruitment is a tough job, a Bath University professor has told a mixed audience of recruiters and procurement officials in London.

While business contracts should reflect “an evolution of mutual understanding on both sides of what and what is not possible”, achieving such clarity in contracts is “not easy”, acknowledged Mike Lewis, professor of operations and supply management at the university’s School of Management.

Lewis was speaking at a business forum last week sponsored by the Association of Professional Staffing Companies (APSCo), in association with Ernst & Young and the Chartered Institute of Procurement Professionals (CIPS).

In procuring complex performance, procurement officials face three fundamental dilemmas, Lewis said. They are:

• Buying a service that the buyer does not understand. Lewis said: “The second you start to outsource…you are running the risk of having to buy stuff you don’t understand. The people who might know about it aren’t always part of the commercial team. Most organisations get to a place where no one in the organisation knows what they’re buying.”

He went on to say that it might be advisable to bring back in-house some of the capability that was needed “to have some control over the supply base”.

• Shifting resources, shifting requirements. Lewis explained that it was hard to “spec in” in, for example, a five-year contract “something that is subject to change”. He asked: “How do you write a contract… and accommodate these shifting” elements?

• Complex co-ordination. A buying organisation may have only asymmetrical information to work with in its operating environment. With a lack of knowledge, the organisation may then rely too heavily on its relationship to ensure the best possible result. “Relational governance is massively dangerous,” Lewis said.

In a panel discussion following Lewis’s talk, Ian Schollar, head of certification at CIPS, said that an organisation’s approach to complex procurement depended on its maturity. A focus on procurement as “a series of tasks” was likely to suggest a greater emphasis on costs.

On the other hand, Schollar said, an emphasis on a contract’s potential impact on the organisation was likely to mean “a focus on quality”.

Lewis noted during the discussion that once a contract had been let, cost was such “an easy measurable, it becomes the only hammer we use. That’s where quality is lost”.