Guide to procurement

1
Guide to procurement

• Presented by Tony Wiltshire

2
Session Overview

• Your view of procurement?
• Procurement at Leeds
• Procurement Essentials
• The Procurement Cycle
• Supply Positioning Technique
• Procurement Spend Analysis
• Role of Politicians in Procurement

3

• What is YOUR view of Procurement?

4
A modern view?

• Responsible for direct and measurable savings
• Commercial negotiations with suppliers
• Continuous improvement programs
• Contract and risk management
• Cost avoidance programs
• Market segmentation and supply positioning
• Part of a multi-disciplinary team
• Key to successful strategy delivery

5
Or something like this?

• Deals in low value orders and commodities
• No added value adds delay
• Handles the paperwork
• Controls rather than enables
• Subset of the finance function
• An overhead outweighing savings
• Stand-alone administrative function
• Any one can do procurement

6

• Procurement at Leeds

7
Procurement at Leeds

• Procurement Information
• 800m spent on external goods works and services
• 600,000 invoices p.a. (450,000 lt 250)
• 35,000 paper invoices (3 telephone directories
  /mth)
• 2000 approved contractors
• 40 corporate framework contracts
• 40,000 creditors
• Procurement Resources
• Corporate Procurement Unit
• Public and Private Partnership Unit
• Departmental Resources (e.g. ADS, Social
  Services)

8
Procurement Regulations

• EC Procurement Rules (Legal Requirement)
• Thresholds
• Works 3.8m, Services Supplies 154k
• Three Procedures
• Open, Restricted and Negotiated
• Contract Procedure Rules (LCCs Rules)
• Fair, Transparent, Legal, Value for Money
• Other related legislation
• E.g. TUPE (staff transfers), Health and Safety,
  Equalities, etc.

9

• Procurement Essentials

10
Procurement Essentials

• Corporate arrangements that create the capacity
  and capability necessary for successful
  procurement, contract management and supplier
  relationships
• A procurement process that is built around the
  procurement cycle, a structured approach to
  project and risk management and legal
  requirements
• Contract management, planned well in advance,
  that it is about ensuring benefits (outcomes) are
  delivered, continuous improvement and sound
  relationships with suppliers as well as controls.

11
Procurement EssentialsCorporate Arrangements

• Leadership
• Procurement Strategy
• Procurement policies and procedures
• Register of contracts
• Ethics and fraud prevention
• Procurement skills
• Centre of expertise

• Management information
• Performance measurement
• Supplier intelligence
• Supplier relationships
• Collaboration
• Promoting diversity and competition
• Resourcing projects
• Business case culture
• Community benefits

12
Procurement EssentialsProcurement and Contract
Management

• Project management
• Project organisation
• Risk management
• Procurement cycle
• Gateway review process
• Contract management
• Supplier relationship management

13

• The Procurement Cycle

14
The Procurement Cycle
1. Determine Need 2. Procurement
Planning 3. Specify
Requirement 4. Source the
Market 5. Assess
Capability 6. Terms and
Conditions 7. Enquiry,
ITT, RFQ, etc 8.
Quotation, Tender or Bid 9.
Evaluation 10. Clarification
and Negotiation 11. Award of Contract
22. Management Information
21. Payment
20. Performance Review 19. Use by
Customer 18. Store and Control
17. Acceptance 16.
Receipt 15. Transportation/Timing
14. Quality Control
13. Expediting 12.
Acknowledgement
15
Upstream Emphasis

• Upstream adds value
• Planning, specification, supplier selection
• Risk assessment, contingencies, negotiation
• Contract features

• Downstream adds cost
• Measurement, expediting, returns
• Transactional elements
• Disposal

16

• The Supply Positioning Technique

17
What do we buy?
Risk
Ensure supplies e.g. Specialist
care, Specialist component Or services
Contract/Supplier Management e.g.
outsourcing, Waste management, Care provision
Bottleneck
Strategic
Minimum attention e.g. stationery, Courier
services, Cleaning materials
Drive for Savings e.g. IT, Vehicles, Utilities,
advertising, Temporary staff
Routine
Leverage
Value
18
Managing Procurement Activity
Risk
Market development Raising attractiveness Ensuring
supply
Contract Management Performance and
Benchmarking Negotiation Innovation Cost avoidance
Decentralised to Services
Bottleneck
Strategic
Corporate contracts (enforced) Automation Except
ion Management Technology Long-term
contracts Aggregation
E-Sourcing Quick wins Short-term
contracts Standardisation and Aggregation Market
awareness
Routine
Leverage
Centralised / Corporate
Value
19
Making Savings
Risk
Invest in securing supply NO SAVINGS Cost
Avoidance
Value for Money Cost Avoidance
Bottleneck
Strategic
Efficiency Savings Aggregation
Aggregation Quick Wins Take Advantage
Routine
Leverage
Value
20
How Suppliers See Buyers
Account importance
Development
Core
Nuisance
Exploitable
Spend
21

• Procurement Spend Analysis

22
Components of a Spend Analysis

• Who are the suppliers
• Who are the buyers
• What are we buying
• Individual items and categories
• Spending profiles
• Value, quantity, frequency, etc
• How are we buying
• Under common contracts?

23
Why the Analysis is Important

• Set realistic and achievable savings targets
• Understand the range of things procured
• Obtain an overview of our supplier base
• Understand who is procuring and how
• Develop procurement strategies, policies and
  systems
• Baseline measures and key performance indicators

24

• Politicians Role in Procurement
• Leadership, decision-making and scrutiny

25
Politicians Role in Procurement

• Adopting Corporate Procurement Strategy aligned
  with strategic outcomes
• Overseeing corporate arrangements for procurement
  and contract management
• Promoting the use of gateway reviews

• Monitoring Performance of partnerships and other
  key contracts
• Learning lessons from major projects and
  partnerships
• Leading best value reviews of procurement and
  contract management

26
Politicians Role in ProcurementOverview and
Scrutiny

• Conducting inquiries into new models of service
  delivery
• Reviewing areas of high spend to identify
  opportunities for improved value for money
• Challenging the progress of major procurement
  projects

• Reviewing the performance of partnerships and
  other key contracts
• Ensuring that lessons are learnt from major
  projects and partnerships

27
Best Value Procurement

• Policy and Strategy
• Structure and Organisation
• Skills and Capabilities
• Information Systems
• Tools and Techniques
• Procurement Arrangements
• Controls and Standards
• Performance Monitoring

28
Policy and Strategy

• Procurement is legal, ethical and transparent
• Manage supply chains and develop better
  relationships
• Reduce the cost of the procurement process
• Obtain value for money
• Continuously improve the procurement process
• Promote local sourcing and local employment
• Seek out and evaluate best practice
• Reduce the occurrence of contractual disputes
• Promote social policy objectives

29
Structure and Organisation

• Sphere of activity and terms of reference.
• Areas of activity - strategy and operational
• Staff supplemented by officers with skills
  currently lacking
• Independent person to act as a single point of
  enquiry for suppliers
• Partner style relationship with the Chamber of
  Commerce
• Nominated officers have departmental
  responsibility for procurement and meet as a
  Procurement Best Practice Forum
• Organisation be funded from central resources

30
Skills and Capabilities

• Personal development plans established
• Training via national vocational qualifications
• One-day seminars delivered on a train the
  trainer basis
• A skills audit be carried out of all those
  involved in procurement initially for all
  levels/disciplines
• Procurement be incorporated into existing
  management training programmes
• A training programme be delivered to politicians
  and suppliers
• A political procurement champion be nominated

31
Information Systems

• Strategy for the introduction of e-procurement
  systems (graduated basis) with a
  consultation/training programme for suppliers
  carried out beforehand
• Introduction of purchasing cards
• Detailed analysis be carried out on current
  financial systems to ascertain whether they can
  provide necessary procurement management
  information
• Intranet and Internet be developed into a best
  practice/standard document resource for all
• Develop an electronic contract information system
  so that people can find best deals

32
Tools and Techniques

• Standard tender evaluation model developed so
  tenders are evaluated on best value principles
• Contractor performance monitoring strengthened
• Rationalisation of Approved Lists System
• Develop relationships with suppliers
• Move away from contract guarantee bonds
• A strategy be developed to counteract false
  information including IS0 9000 certifications

33
Procurement Arrangements

• E-instruction manual to standardise approaches to
  procurement projects including options appraisal,
  market testing, outsourcing, partnering, project
  management, market management
• Establish a series of framework agreements and
  contracts for all types of procurement

34
Controls and Standards

• Mechanism to ensure that all officers involved in
  procurement are aware of the rules affecting them
  - local, national, EU
• Standard template documents covering all aspects
  of procurement be produced and made readily
  available, with controlled revisions
• Series of regular training courses be provided on
  the relevant rules and how they work

35
Performance Monitoring

• ISO 9001 and ISO 14001 be integrated within the
  management framework
• Introduction of e-procurement - set targets to
  reduce paper invoices and payments
• A procurement savings register
• Strategic performance indicators are established
  and systems developed to supply the necessary
  information

36
Strategic Performance Indicators

• EFQM Business Excellence Score
• Client satisfaction score
• expenditure with approved suppliers
• expenditure under framework contracts
• Number of approved suppliers per TL/ euro of
  total expenditure
• Staff costs as of approved expenditure
• Number of complaints/ challenges in period
• total expenditure on procurement cards
• total expenditure by e-procurement
• Number of contracts awarded by e-commerce
• of total expenditure via partnerships
• total expenditure through local sourcing
• Total estimated savings in period

37
Performance Monitoring ctd

• That the following operational performance
  indicators are established, and that systems are
  developed to collect the necessary supporting
  information
• Average contract management satisfaction score
• Shopping basket price performance
• Average price variation against retail price
  index
• Average tender response rate
• Average difference between lowest and highest
  tender prices
• Number of adverse performance reports in period

38
Participant Exercise

• 5 stages of the procurement process
• Plan
• Tender
• Evaluate
• Award
• Manage

39
Questions
tony.wiltshire_at_leeds.gov.uk