The Engineer's view of Purchasing - Dave Hannon BizConnect

The link here illustrates some of the tensions between Purchasing and their clients. The key part is;

"Dave: "So what do you think of purchasing professionals in general?"

Engineer Friend (EF): "I haven't met one yet I didn't try to get fired."

Dave: "Really? Why so bitter?"

EF: "Well, imagine this. I've been working closely with a supplier on narrowing down a spec, spending a lot of phone and face time with the supplier, figuring out exactly what I want to work in my design. And then I submit it to purchasing and they come back and tell me they have a different supplier that can save us $1. And then the design fails and I get the heat."" Dave Hannon on BizConnect

I have worked with both Engineers and Purchasing people for years, and the mistrust can be mutual. Purchasing people are rightly suspicious of Engineers who specify requirements so tightly that only one supplier can do the job - who just happens to be the one that the Engineer always uses. Why is that? Are they the best, or do they just have the best salesman, or the best Golf day?

As so often, these are best issues are best resolved by communication - and the best way to do that is to get the Engineers and Buyers together regularly, formally and informally so that they can get a feel for the role that other plays. I am a great believer in short term (3 to 6 month) secondments as a way of raising awareness and co-operation across the business. You might think your business cannot afford that, but how else are you going to get people trusting each other?

Summer Experience with PAWA Consulting

Hello,

My name is Bartosz Kozinski. I come from Poland. I am a student working for PAWA Consulting this summer. I have just finished my second year on undergraduate Business and Management course at Bradford University School of Management.
My summer project's aim is to develop and populate a CRM system for PAWA Consulting. I am already looking forward to gaining new skills and learning how to put theory into practice. My first few days at PAWA Consulting were fantastic and I look forward to next weeks of my project with great enthusiasm.

Bartosz Kozinski

Good and Bad Speeches

David Hepworth at Word Magazine makes a very good point - click here

"In the course of attending a lifetime of speech days I have finally realised you can tell a good speaker from a mediocre one without actually hearing a word of what they're saying. The poor speaker looks at their notes. The good speaker looks at their audience. The poor one thinks you're listening to hear what they're going to say. The good one knows you're listening to them because they're interesting to listen to."

Follow up: NICE and the Price of Life

A quick follow up to the last post - a documentary by Adam Wishart covering the same ground as his article on NICE is available on the BBC I-player until 25th June 2009.
Details here.

It is called "the Price of Life".

In place of Negotiation - NICE and the cost of drugs

In the Sunday Times on 7th June 2009 Adam Wishart had an interesting article on the procurement of drugs by the NHS, and the role of NICE. The article is "the unbearable cost of living". I apologise if my summary of the article in any way misrepresents it, and I suggest people read it themselves.

Adam Wishart has himself lost a parent to cancer, and so at the start of the article is very much on the side of the patients who are asking why they are being denied new treatments which they think might help them, which have been rejected by the National Council for Clinical Excellence on the grounds that they cannot be justified in terms of value for money. Naturally the patients believe that the lives of their loved ones (usually their loved ones, not themselves) is worth any amount of money.

This is a very emotive, and emotional, issue and some people will think that the NHS should be about saving lives and not about the cost of treatment. Adam Wishart explores this and quite unusually moves beyond his initial position to recognising that finances are limited, and if we spend too much on any one treatment we reduce the amount available for other treatments. He asks the very difficult question, that has to be tackled by the NHS and by NICE, "should we give preference to terminally ill patients by giving them access to expensive new treatments that could extend their life, or should we spend the money on less ill patients who will benefit from their treatment for years to come". The wisdom of Solomon indeed is needed for such questions.

He raises the question of why the drug companies charge so much for their new products, and quite reasonably explains that they are out to make a profit, and the way to do that is to charge a high price. And if people will pay $100 000 for another year of life (and wouldn't we all if we had the money) then it is in their interests to charge that - even if it means some people cannot afford it.

The point I wanted to get to though is his final point - "why can't NICE negotiate lower prices?". The NICE process is to approve drugs for clinical use on the basis of value for money - and it is a pass/fail system. If you cannot demonstrate that the efficacy of your new drug justifies its cost, then it is not approved and will not be provided on the NHS.

There are several drug treatments that are quite beneficial, and quite expensive, and fail the NICE test because of their cost - surely if we negotiated with the manufacturers to lower their prices we could provide them on the NHS?

This seems sensible at first glance, certainly to people not used to the commercial environment. What is not apparent is that this will lead to higher prices overall.

What NICE are doing is asking for, effectively, a fixed price proposal. They want the bidding companies to put in their very best price - the one that will give them the best chance of winning business. Removing the oppportunity to negotiate puts the pressure on the drug companies to put in a low price to improve their chance of winning the contract - in effect they are going to always put in a price on the low side of the range of possible pricing points.

If we introduce post bid negotiation we have a number of consequences.
The first is the that the drug company no longer has so much fear of not being succesful, and so is more likely to put in a price in the middle or top of their possible pricing band - if this price is too high they can always reduce it in negotiation to win the business. The fear of not getting the business is a key factor in salesmen setting lower prices - remove it and they will go for higher margins.

So, the average input prices will go up - and the average price paid will go up as a consequence. We will approve anything below our value for money point, though those prices may be higher than under the no-negotiation system, and will negotiate on those that are too expensive. On average this means prices paid increase - not the first time, and not on everthing, but over time and on average they will rise. Note that the performance of the drug has not improved - but the price we pay will rise, meaning the NHS becomes less cost effective.

Note that we have also created more work for ourselves by allowing negotiation, and slowed the process down.

This is not obvious to everyone, and does lead to people feeling their life is undervalued. The reason for NICE's approach is to do the maximum good with the resources available - and the way to do that is to put the drug companies under pressure. Unfortunately it does the same for patients too.

Chemical Business Networking Group

The CBNG (or just CBN) is exactly what it says - a networking group for people in the UK Chemical Business. The membership is drawn from across the whole range of business, but historically draws most strongly from the Chemicals Manufacturing sector. Membership costs nothing, but is by invitation and limited to 140 members. Meetings are 3 times per year and consist of nothing more elaborate than an opportunity to mingle, a pay your own way lunch, and then a chat across the tables. Occassionally we have a guest speaker. The meetings alternate between Manchester, York and London.

This year I have the honour of being co-chairman with Roger Anderson of Griffin Management - a recruitment consultancy specialising in the chemical industry. If you would like to attend then please drop me a line at info@pawa.co.uk, and I will be happy to chat about it. I am particularly keen to continue to attract further members of the manufacturing base, so the we don't end up with too many "enablers" and too few "do-ers" like some networking groups.

Excellence in Public Sector Procurement

Along with Stuart Emmett of Learn and Change, I have been commissioned to write a book on Excellence in Public Sector Procurement by Cambridge Academic. This will be part of their successful "Excellence in...." series, to which Stuart has already contributed a number of titles. The first draft is due in June 2009, for publication early in 2010. It will be available via Amazon, and hopefully CIPS and direct from the authors and publishers. I would like to say "all good booksellers" but there are very few books on procurement that actually get onto the bookshelves - maybe this will be an exception.

I would be grateful for any comments on best (or worst) practices that we should ensure that we include in the book. Case studies also always welcome.