Understanding the Impact of Covid-19 on NZ Public Sector Procurement

public sector network insight women image

Government Keynote Highlights from Johanna Day, Manager, Supplier Relation Management, Ministry of Business, Innovation & Employment in which she discusses strategies on improving value and mitigating risk through supplier management

Creating relationships with suppliers

The last few years have seen a number of nearly overwhelming challenges that organisations have had to deal with, which have affected every aspect of the way both the private and public sectors operate. This has included the field of procurement, which according to Johanna Day , the Manager of Supplier Relation Management at the Ministry of Business, Innovation & Employment (MBIE), has changed and should change further. In fact, supplier relation management (SRM) should be “the new norm” when it comes to procurement, but only once it is clear to all what SRM is and why it is so important.

In procurement circles, people often “use the terms SRM and contract management interchangeably, but they are not the same thing.” Contract management is all about delivering the services or goods outlined in the contract. In many cases, this is procurement 101. SRM however is “about generating new value that goes beyond what’s written in a contract.” It is about performance and relationship management and “if we focus on that, then we will see value generated through continuous improvement and innovation over time.”

This is particularly relevant now because, after events like “earthquakes, floods, security threats, and COVID-19, there is a burning platform for change.” The New Zealand Government currently spends “about $51 billion per year on third party goods and services, with a massive proportion of that delivered through strategic suppliers.” The time is therefore right to increase relationships with suppliers, especially because the pandemic has “placed significant demands on organisations globally, increasing the risk of business failure and exposing a number of supply chain challenges.” Many businesses have therefore had to “find alternative ways to deliver services.”

“To prepare for future challenges and events we need to understand supply risk and mitigate the impact, and we also really need to build relationships with critical suppliers based on trust and mutual commitment during difficult times. It is the relationship that matters the most, not what’s written into the contract.”

Johanna Day

Manager, Supplier Relation Management

Ministry of Business, Innovation & Employment

Regarding external challenges and the mitigation of risk, whilst the public sector often has good relationships with their suppliers, “in many cases there is no coordination of the relationship across the system.” This has implications for cost and complexity, but more importantly, “this lack of coordination makes it really difficult to manage supply chain risk because there’s no holistic overview.”

A new way forward

Historically, procurement has focused on bulk purchasing as a way of cost-saving. In New Zealand however, the government “recently introduced the concept of public value, which is about getting the right price for quality goods and services, but also considers social, environmental, cultural, political and economic outcomes that will deliver wider benefits for New Zealand.” As beneficial as the concept is though, it is “not conducive to building partnerships that genuinely contribute to long-term strategic objectives. To really achieve public value, procurement needs to shift its focus from short term benefits to a more holistic approach.” To get to that point, New Zealand Government Procurement (NZGP, part of the MBIE) together with the State of Flux – a global leader in SRM research – “reviewed supply management practices across the NZ public sector.” Whilst the review found that “the overall maturity of supply management practices were ‘developing’, it also suggested a number of improvements. NZGP is addressing a number of these recommendations.”

Part of the review included a survey “with 75 cross-government strategic suppliers” that asked them about things like “innovations, sustainability, commercial operations, and relationship management.” On innovations and sustainability, the NZ government “scored lower than average.” Moreover, when asked if “suppliers thought that the government was considered a customer of choice,” the average score was 3.5, “below the average global score of 3.7. This shows that the status is really fragile.”

It is common within the industry to hear that procurement needs to be engaged early and that the whole process needs to improve. However, “these changes alone aren’t sufficient in today’s environment.

What will really make a difference is that the relationship with those suppliers needs to be the best that it can be.” Collaboration with those suppliers will also improve public value. On top of that, there are a number of tips and ideas that the NZGP recommends to “improve SRM practices in the public sector:”

  • “Use supplier segmentation to identify strategic suppliers”
  • “Define the governance, roles, and responsibilities for SRM”
  • “Be as open and transparent as possible with long-term strategic suppliers”
  • “Rationalise the number of contracts with strategic suppliers and replace them with relational or outcomes-based contracts”
  • “Enhance systems and capability development – upscale all areas of the business”

NZGP is also currently developing “a government SRM toolkit, intended to be used for agencies at various levels of maturity in SRM practices.” A proof of concept with “two cross-government suppliers” is currently being developed “to demonstrate that there is value in SRM.” It is time for some “new thinking” and as such, assuming that proves successful, “we’ll be developing a roadmap and a business case for the program, and we’ve established an SRM community of practice with working groups of advocates for SRM across the public sector. SRM is the way forward so we’re all working together to share our experience and contribute to the program.”

Share this insight:

Community Comments