Giving Procurement a voice

Steve MaloneManaging Director – Procurement for Housing

What is the opportunity?

Recent research by Accenture identified that organisations with high performing procurement functions achieve procurement savings that are 30% higher than low performers yet cost about half as much to run. They identified that a relationship exists between procurement ‘excellence’ and superior financial performance. The disappointment though is that most organisations fall short of ‘excellence’ for strategic and process reasons.

£millions Decreasing external spend by 10%

Increasing revenues by 10%

Decreasing labour by 10%

Revenues £14,860 £14,860 £16,346 £14,860

Non addressable costs £3,994 £3,994 £4,397 £3,682

External costs £7,017 £6,315 £7,683 £7,017

Operating surplus £3,850 £4,551 £4,266 £4,161

Change in net surplus (£) £701 £416 £311

Change in net surplus (%) 18.2% 10% 8%

MarketChallenges

Revenue pressure – welfare reform etc

EU regulatory changes

Funding & borrowing challenges

End of decent homes

Skills & materials shortages

Projected construction inflation – C.18%

SectorChallenges

FunctionalChallenges

40%Sourcing & Category Manage-

ment

30% Compliance

20%Aggregation

10%Other Efficiencies

Average Performance Range

Sector Leading Performance Range

Let’s take a detailed look at asset management…

Client

ConsultantsProfessional

Services

Main contractor

Sub-contractor

1

Sub-contractor

2

Sub-contractor

3

Sub-contractor

4

Sub-contractor

5

Sub-contractor

6

Sub-sub contractor

Materials supplier

Materials supplier

Materials supplier

NEEDS: Low cost, good quality

NEEDS: High fees, acceptable quality

NEEDS: High final price to maximise profit

NEEDS: Payment on time

Potential for conflict & additional costs at each interfaceStructure re-assembled for each project

Conflict

Conflict

Conflict

Conflict

Conflict

Inappropriate allocation of risk

Lack of information &

data

Adversarial culture

Poor management /

project management

Little investment in innovation

Low and discontinuous

demand

Inappropriate selection criteria

Frequent changes in specification

And the outcome is…..

At the point of contract award? 65% of contracts unravelling before

their full term

Costs out of sync with other sectors

i.e. new build

Significantly more re-specifying than

other sectors

Over specifications

Typical over-runs

Fluctuating satisfaction levels

Increased lifetime maintenance costs

Value Leakage

What is procurements sphere on influence?

People

Funding / legal / insurance

Development

Asset Management

Energy

Indirect

Procurements transformation

The fundamental building blocks

Savings

EfficiencyCompliance

Leading procurement organisations achieve 1.7 times the

profit growth

Leaders have 30% additional

savings compared to

lowest performers

Leaders procurement function costs

50% less compared to

lowest performers

The average additional cost

for non compliant

spend is 22%

Frameworks Service Offering

Identify

What WhyHow

Achieve controlLeverage the organisations

potentialUnderstand where to prioritiseUnderstand where value can be

createdVisibility & forward planning

34% increase in spend under management

5 – 12% increase in savings on total spend

Spend analysisProcurement, compliance &

VfM analysisSupplier appraisal

Health checkStrategy, policy & procedure

reviewTechnology review

Capability appraisalRisk analysis

What WhyHow

Delivering short & medium term savings

Optimising the procurement process

Ability to measure performancePrioritisation – savings, risk &

complianceTransparency

Average achievement of 15%+ in savings

Reduction in supply baseDevelopment of strategic

relationships

Spend transformation, VfM statements & benchmarkingLean process transformation

Strategic sourcing & contract re-negotiationFrameworks

Contract alignmentCategory planning

Risk strategyTechnology & data efficiencies

Realise

What WhyHow

Increase savingsCost avoidance

Mitigate savings leakageLeverage strategic supplier relationships to redesign

services & productsDrive efficiencies through embedded technology & process transformation

3 – 12 x RoI22% improvement through

compliance on cost maintenance

15-40% reduced procurement operating cost through the use

of technologySpend under management

greater than 90%Cost avoidance

Supplier managementContract managementSourcing & renewals

Category managementDemand management /

innovation / process improvement

Market analysisExternal benchmarking

Risk managementTechnology implementation

Maintain

Final thoughts…..

To achieve a voice you need to overcome the challenges, gain control and deliver results.

Procurement for Housing can help you to:

• Drive savings• Create efficiencies• Deliver compliance & mitigate risk