A New Paradigm in Government Purchasing: Highways England and Its Continuously Improving Supply Chain

By Robinson, Alan G.; Schroeder, Dean M. | The Journal of Government Financial Management, Winter 2016 | Go to article overview

A New Paradigm in Government Purchasing: Highways England and Its Continuously Improving Supply Chain


Robinson, Alan G., Schroeder, Dean M., The Journal of Government Financial Management


Highways England (HE), the government enterprise responsible for building and maintaining England's primary motorway system, had a problem. The budget it had been given for the next five years was £1.2 billion less than the cost of the work it was required to undertake. Two things were clear. First, with 95 percent of the agency's funds going to external contractors, there was no hope of bridging this gap by finding savings and efficiencies within HE itself. Second, simply issuing requests for proposals and choosing the lowest qualified bids was not going to make up much of this difference either, as HE was already getting highly competitive prices. Rather than working with suppliers through traditional arms-length market-type transactions, HE needed to completely recast its approach to sourcing. This article explains how HE developed an innovative approach to selecting and working with suppliers, one designed to drive substantial ongoing performance improvement throughout its supply chain. This approach pushes the boundaries of procurement models beyond even the most sophisticated private-sector supply-chain management practices.

Background

HE is a 3,500-person British government company charged with modernizing, maintaining and operating England's 4,300 miles of core motorways. While these highways represent only 2.4 percent of England's roads, they move a third of its traffic and two-thirds of its heavy truck traffic. HE was converted from a government agency - the former Highways Agency - to a government-owned enterprise on April 1, 2015. This was done to insulate its funding from the whims of the annual government budgeting process and to give its managers increased freedom and flexibility to run the organization more like a business. This change came about as a result of the realization by UK political leaders that better roads were vital for economic growth and would greatly improve their constituents' quality of life. The new organization was given five years of funding tied to an ambitious set of goals, including £11 billion in capital programs and £15 billion in road upgrades (installing smart highways, adding lanes, road-resurfacing, improving road drainage, etc.).

With the lion's share of the annual highways budget going to private-sector contractors, back in 2008, the former Highways Agency began to concentrate improvement efforts on its supply chain. It began by strongly encouraging suppliers to adopt the principles of lean management to improve process efficiency, eliminate waste and complete work more quickly. Lean management, an outgrowth of the Toyota Production System, has become widely used in the private sector over the last two decades. Recently, it has started to emerge in the government sector. When deployed effectively, lean management drives radical improvements in performance. While a few cutting-edge companies have successfully pushed lean management deep into their supply chain, they have done so on a firm-by-firm basis. HE has designed its approach to be a collective one, motivating each supplier to share innovations and process improvements with the whole supply chain, rewarding it for doing so, and incentivizing each of the other suppliers to understand and adopt these improvements. In this way, HE has turned its supplier base into a giant learning organization.

Deployment Strategy

In The Highways England Delivery Plan 2015-20, HE spelled out how it intended to achieve its ambitious goals: "We will implement a lean deployment strategy that will build a culture of continuous improvement throughout Highways England and its supply chain to deliver increased customer value and efficiency saving in support of the Strategic Business Plan."1

This strategy is a continuation of the former Highway Agency's initiative begun seven years earlier. Over that time, HE has honed its approach for deploying lean management throughout its supply chain into one with four basic elements, as illustrated in Figure 1. …

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