C o n s u l t i n g a n d e B u s i n e s s Southend Borough Council © Purcon (Consultants) Ltd 2002 Best Value Procurement Review Procurement Workshop

© Purcon (Consultants) Ltd 2002

C o n s u l t i n g a n d e B u s i n e s s

Southend Borough Council

Best Value Procurement Review

Procurement Workshop6 September 2002




Agenda define Procurement

what are we talking about? why is it important? and what are the risks if we get it wrong?

improving procurement performance some general issues some Southend-specific issues

the planned review scope process

any other questions




DefinitionsProcurement

This encompasses the whole process of acquisition of goods, services, and works, from third parties, from the initial assessment of business need through to the end of the life of the asset or service. (Byatt Review, Terms of Reference)

Supplier Any external organisation paid to provide

services, goods, or supplies




Procurement

It usually involves a central Procurement function

for part, or sometimes all, of the necessary activities

users and budget holders for part, or sometimes all, of the necessary activities

a process which people should follow systems support




The Role of Procurement

To add value to the organisation through the effective development and management of the supplier base

The best have total acquisition and lifetime costs which are 20%, or more, better than the worst




What If You Get It Wrong?




Commercial Risk? high prices extras

delivery charges packaging handling certificates

poor quality and service undue maintenance costs over-long contracts




Legal Risk?

You ‘phone and ask a supplier to deliver some goods, but you do not confirm anything in writing.

Do you have a legally binding contract? If so, whose terms apply?




Statutory Risk?

You breach EU procedures, or UK public sector procedures and get sued

or worse . . . . . . get fired!




Compounded Risk? The sum of various risks taken together




The Byatt Report“Delivering better services for citizens” – published 2001 Better procurement should be an integral part of best value within

every authority, as the achievement of best value depends on good procurement.

The procurement function should have a much higher profile and be more strongly staffed: the responsibility of a senior officer and be part of the remit of a

member Procurement experts should guide any delegation of individual

procurement to officers in service areas Robust and clear procedures should be set out for appraising and

implementing large and complex contracts, drawing from current best practice




Improving Procurement Performance




Some General Thoughts




transactional

commercial

strategic

increasing sophistication

quantum leap

worldclass




supp

lier’s

pric

e

profit 10%

value added 30%

materials 60%

Unsophisticated buyers: squeeze the margin, might achieve 3-5%

Sophisticated buyers: target the 90%, might achieve 40%

The Illustration




supp

lier’s

fee

profit 10%

overheads 50-40%

direct costs 40-50%

The Service Model




Change the Way You Think




A Fundamental Truth

Suppliers treat theircustomers differently




The Big Issue

Ensure your suppliers try harder for you than they do for anyone else . . .

You do not want them to take short cuts with you




Some Techniques



How Do Suppliers View You?

ease of dealing with you

your spendlow high

high

low

Development Core

Nuisance Exploitable



Are You a Nuisance?


your spendlow high

high

low

Your business not wanted - typified by poor service and rising prices



Are You a Development Customer?


your spendlow high

high

low

Your business wanted - operational people at supplier give good service to you but limited opportunity to negotiate



Are You an Exploitable Customer?


your spendlow high

high

low

only top people at supplier want your business - difficult to arrange good deals



Are You One of Their Core Customers?


your spendlow high

high

low

supplier’s most favoured customers - partnerships sought, high service levels given, negotiations relaxed and easy




The Purchasing Portfolio Matrix

Impact of supply

problems

Annual Spendlow high

high

lowStreamline - manage the

admin.

Manage the risk

Short term deals - manage

the price

Long term deals - manage the relationship




Southend-specific Issues




Parameters £103 million external spend 6,000 suppliers

170 > £100,000 pa top 60 = £40 million (40% of total spend)

119,000 transactions (incoming invoices) pa 28% < £100 they are worth £1.6 million (excluding VAT) this is 1.6% of total spend




CategoriesKey spend areas are: £ million social care “contractors” £26.5 other contractors £17.4 capital £9.8 stationery / desktop support £3.0 furniture £2.8 asylum seekers £2.4 transport £1.9




Procurement Expertise and Attitudes no centre of procurement expertise

limited co-ordination

highly fragmented approach

few (if any) corporate contracts for stationery, furniture, etc

no fast-track process for the low-value purchases




Working Practices limited capability pre-assessment for suppliers

approved lists in TS, but “approval” a bit hit and miss

environmental procurement important but not yet practised

still a long way from e-procurement

risk assessment and management is not a routine part of purchasing process

poor contract database - so compounded risk is an issue

no on-going supplier performance monitoring

no procurement performance monitoring – so how will you know what improvements are achieved?




Where Are You Now?

We use a simple model to benchmark procurement performance

It uses 22 indicators grouped into 7 key areas




A Model for Procurement




A Model for ProcurementBack wheels:

Performance & risk management:

performance measures

risk management

Processes:

their emphasis

supplier selection

payment processes




A Model for ProcurementFront wheels

Sourcing & supplier management:

supplier evaluation

supplier relationships

supplier monitoring

environmental management

specifications

Systems support:

procedures & processes

information




A Model for ProcurementEngine

Structure & resource level:

type of department

training & skill mix of those involved

career development





Driver

Strategy & Vision:

overall objectives

marketing





processes

performance & risk management

sourcing & supplier management

systems support

structure & resource

strategic direction




Role

The car also has a perceived role: How do others see it?

high status and strategic . . . . . . or low status and administrative?




A Model for ProcurementRole

We look at 5 indicators of perceived role:

internal perceptions

location of department

supply chain integration

coverage

involvement




What Sort of Model Have You Got?

good procedures and controls, but little or no emphasis on support information and supplier management





a Procurement rescue service, when budget holders foul it up




What Sort of Model Have You Got?no engine, very little emphasis on suppliers or on support information, just lots of controls (audit trail) and procedures





?




0

2

4

6

8

10

Overall objectives

Marketing

Internal perceptions

Location of Department

Supply Chain Integration

Coverage

Involvement

Measures

Risk Management

Type of department

Training & skill mix

Career development

Supplier evaluation

Supplier relationships

supplier monitoring

Environmental management

specifications

emphasis

supplier selection

payment practices

information

procedures and processes




What Sort of Model Do You Want?

a winning model




What Sort of Model Do You Want?

robust, stylish, versatile, go-anywhere, safe, do anything . . .

or




Your Aims Should Be . . .

Dramatic improvements in Procurement performance for Southend through:

Better commercial deals leading to lower costs

5% saving is £5 million

Better supplier responsiveness and quality leading to improved service delivery




The Planned Review




ScopeFour key outputs recommendations for a corporate procurement function

what sort? how big? what should it cover? where should it sit?

recommendations for e-procurement recommendations for green procurement mechanisms for achieving better value for money




How Do You See Procurement Impacting on Local Economy?




Some Suggestions Whatever the scope, the review should look at how well you

currently procure, and should recommend a realistic way forward covering: procurement resource and structure needed people involved, and their skills and knowledge working practices, formal and informal systems support (IT) changes to standing orders / contract regulations target setting and performance monitoring way forward and implementation plan improvement potential available




Purcon Role at Southend Council




Working with the Best Value Review TeamBaseline assessment through consultation with

key stakeholders users and budget holders senior management suppliers

information collection and analysis

audit of processes, working practices and procedures (how, and why, not compliance)




comparison with external best practice

challenge

throughout the process

specific challenge workshop

your opportunity to challenge our findings

competitive recommendations with outline costs and benefits of the proposed changes

outline implementation plan




Timings Our work starts today Baseline assessment / competition / comparison /

options for the way forward mid November

Service delivery options / recommended way forward mid January

Final report mid February




The InterviewsOne-to-one and private, covering what sort of Procurement individuals are involved with -

types of contract types of supplier

what do they do? why do they do it that way? constraints? needs? wants? ideas for improvement




Establishing the Business Case

Developing the Specification

Inviting suppliers to bid

Evaluating suppliers bids

Negotiating contracts & relationships

Managing supplier performance

Managing & monitoring commissioning performance

Variations & extensions

Market / industry research & analysis

Internal & external procurement marketing

Developing & implementing procurement strategy

The Conceptual Procurement Process

requisitioning, ordering, goods inward, payment processing




The Team




Will Parsons FCIPS 22 years in Purchasing consultancy experienced at all levels recent clients:

Chelmsford BC Gwyned Council Herts Police Kraft Foods Sevenoaks DC Watford Council

contact Will on 01527 832555




Mark Allen

MBA – Cranfield University senior purchasing executive with strong business experience experience gained in many different parts of the world recent clients:

Bae Systems Milton Keynes Council London Borough of Southwark Watford Council Surrey County Council

contact Mark on 01780 721664




Questions?




Will Parsons

Head of Training and Consultancy

Purcon (Consultants) Limited

Telephone 01527 832555

Fax 01527 836608

e-mail [email protected]

Documents

C o n s u l t i n g a n d e B u s i n e s s Southend Borough Council © Purcon (Consultants) Ltd 2002 Best Value Procurement Review Procurement Workshop