Guide to procurement Presented by Tony Wiltshire

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

What is YOUR view of Procurement?

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

Or something like this…? l Deals in low value orders and commodities l No added value – adds delay l Handles the paperwork l Controls rather than enables l Subset of the finance function l An overhead outweighing savings l Stand-alone administrative function l “Any one can do procurement”

Procurement at Leeds

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

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

Procurement Essentials

l Corporate arrangements that create the capacity and capability necessary for successful procurement, contract management and supplier relationships l A procurement process that is built around the procurement cycle, a structured approach to project and risk management and legal requirements l 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.

Procurement Essentials Corporate Arrangements l Leadership l Procurement Strategy l Procurement policies and procedures l Register of contracts l Ethics and fraud prevention l Procurement skills l Centre of expertise l Management information l Performance measurement l Supplier intelligence l Supplier relationships l Collaboration l Promoting diversity and competition l Resourcing projects l Business case culture l Community benefits

Procurement Essentials Procurement and Contract Management l Project management l Project organisation l Risk management l Procurement cycle l Gateway review process l Contract management l Supplier relationship management

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

Upstream Emphasis l Upstream adds value Planning, specification, supplier selection Risk assessment, contingencies, negotiation Contract features l Downstream adds cost Measurement, expediting, returns Transactional elements Disposal

The Supply Positioning Technique

What do we buy? Ensure supplies e.g. Specialist care, Specialist component Or services Contract/Supplier Management e.g. outsourcing, Waste management, Care provision Minimum attention e.g. stationery, Courier services, Cleaning materials Drive for Savings e.g. IT, Vehicles, Utilities, advertising, Temporary staff Value Risk BottleneckStrategic RoutineLeverage

Managing Procurement Activity Market development Raising attractiveness Ensuring supply Contract Management Performance and Benchmarking Negotiation Innovation Cost avoidance Corporate contracts (enforced) Automation Exception Management Technology Long-term contracts Aggregation E-Sourcing Quick wins Short-term contracts Standardisation and Aggregation Market awareness Value Risk BottleneckStrategic RoutineLeverage Decentralised to Services Centralised / Corporate

Making Savings Invest in securing supply NO SAVINGS Cost Avoidance Value for Money Cost Avoidance Efficiency Savings Aggregation Quick Wins Take Advantage Value Risk BottleneckStrategic RoutineLeverage

How Suppliers See Buyers DevelopmentCore NuisanceExploitable Spend Account importance

Procurement Spend Analysis

Components of a Spend Analysis l Who are the suppliers l Who are the buyers l What are we buying l Individual items and categories l Spending profiles Value, quantity, frequency, etc l How are we buying Under common contracts?

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

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

Politicians’ Role in Procurement l Adopting Corporate Procurement Strategy aligned with strategic outcomes l Overseeing corporate arrangements for procurement and contract management l Promoting the use of gateway reviews l Monitoring Performance of partnerships and other key contracts l Learning lessons from major projects and partnerships l Leading best value reviews of procurement and contract management

Politicians’ Role in Procurement Overview and Scrutiny l Conducting inquiries into new models of service delivery l Reviewing areas of high spend to identify opportunities for improved value for money l Challenging the progress of major procurement projects l Reviewing the performance of partnerships and other key contracts l Ensuring that lessons are learnt from major projects and partnerships

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

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

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

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

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

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

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

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

Performance Monitoring ISO 9001 and ISO 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

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

Performance Monitoring ctd l 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

Participant Exercise 5 stages of the procurement process: 1Plan 2Tender 3Evaluate 4Award 5Manage

Questions