8. The BBC has strengthened its procurement procedures by establishing a centralised procurement function with qualified staff, moved to managing procurement spending on category lines (Figure 1, above) and extended the use of technology in the procurement process. In 2005 the BBC was awarded Gold accreditation by the Chartered Institute of Purchasing and Supply for its strategic procurement capability.[10]

9. The BBC aims to establish a range of contracts that meet its buying needs and make use of its collective purchasing power. One way the BBC has sought to achieve this is through the use of central contracts. The advantages of channelling procurement through central contracts include better prices and service levels, better contract terms and saving time when placing orders.[11]

10. In 2006-07, however, some £207 million (39%) of the BBC's procurement spending was still through local contracts, and the BBC had faced difficulties getting staff to use central contracts. Some staff believed that central contracts did not always provide the best prices, but they had not taken into account the process costs of sourcing and ordering goods and services locally. In addition, temporary and freelance staff lacked awareness of central contracts.[12]

11. Doing business with a large number of suppliers also makes supplier management more time-consuming and increases administrative costs, so the BBC had been reducing the number of suppliers it used. Of the 17,000 suppliers used in 2006-07, however, over 14,000 accounted for just 5% (£26.5 million) of the BBC's spending.[13]

12. The BBC was aiming to reduce the number of suppliers it used, and planned to review its spending to identify opportunities for more central contracts. At the same time, the BBC would be looking to balance reductions in supplier numbers with keeping its supply base open, competitive and innovative. The BBC had locations nationwide and needed suppliers who could meet local needs. It had sought advice from staff in the regions about what was needed and worked to raise local suppliers' awareness of the opportunities to supply the organisation. The BBC had also set up managed service systems for taxis and recruitment agencies, contracting one company to manage a panel of preferred suppliers across the country.[14]

13. An organisation's procurement activities should be supported by processes which are efficient and simple to use. In 2006-07 the BBC introduced an upgraded electronic purchasing system to allow staff to order goods and services through a range of buying channels. The system allows staff to place orders from their computers, and gives them access, for example, to fixed price catalogues and preferred supplier lists. The overall annual cost to the BBC of processing transactions through its purchasing system is some £6.5 million, at an average cost of £6 for each transaction (Figure 2).[15]Figure 2: Analysis of the cost of the BBC's purchasing processes

Buying channel	Description	Number of transactions		Processing costs
		Total number	Percentage of total number	Average cost per transaction (£)	Total cost (£)	Percentage of total cost
Fixed Price Catalogue	Online catalogue of fixed price goods and services	52,807	5	11.81	623,547	9
Preferred Supplier Lists	Online lists of preferred suppliers	64,820	6	22.25	1,442,463	22
Exceptional Requests	Goods or services not available through other routes	37,740	3	38.77	1,452,608	22
Direct Bookings	Links directly to supplier websites to make bookings	752,699	70	2.21	1,664,128	26
Expenses	Staff expenses	165,848	15	7.90	1,310,511	20
Purchasing Cards	Corporate credit cards	5,000	1	4.77	23,873	1
Total		1,078,914	100	6.04	6,517,129	100
Note: Totals are subject to rounding

Source: C&AG's Report, Figure 10

14. As Figure 2 shows, the process costs vary. Some 70% of transactions are direct bookings which are the least expensive to process and cost £2.21 each. In contrast, exceptional requests are the most expensive to process and cost over £38 each. Exceptional requests were made when goods or services were not available through other routes and were relatively costly to process because of the need to identify suppliers and negotiate contracts. Nearly 38,000 exceptional requests a year were being made. While that was 3% of all transactions, they accounted for 22% (£1.5 million) of total processing costs. The BBC confirmed that its policy was to reduce this form of procurement to an absolute minimum.[16]

15. The cost of the electronic purchasing system includes fees for user-licences, but over 2,000 of the 4,500 licensed users did not use the system in the three months to June 2007. Since then the BBC had introduced a quarterly review to identify licence-holders who had not regularly used the purchasing system, and had removed licences from 780 staff (17% of the original licensed users), saving the ongoing maintenance costs for those licences.[17]

16. The BBC had also saved money by using reverse electronic auctions (known as eAuctions), a procurement approach previously recommended by this Committee. In an eAuction pre-selected suppliers compete online and in real-time for a specific piece of business, offering to supply the goods or services at successively lower prices until nobody wishes to place a lower bid. In the two years to April 2007 the BBC had run 19 such auctions, making estimated annual savings of over £3 million (14%). The BBC had planned to run a further 25 eAuctions in 2007-08, but with little over two months to go had run five.[18]

11   C&AG's Report, paras 2, 25 Back

12   Q 7; C&AG's Report, para 26 Back

13   Qq 9-10, 41-43; C&AG's Report, para 20 Back

14   Qq 8-10, 41, 43, 70-74, 90-93, 97; C&AG's Report, para 30 Back

15   C&AG's Report, para 35 Back

16   Qq 6, 68 Back

17   Qq 3-5 Back

18   Q 44; C&AG's Report, paras 33-34; Committee of Public Accounts, Assessing the value for money of OGCbuying.solutions, page 6, para 11 Back