Purchasing supplies at CERN Procurement Strategy Charles Carayon IPT-PI – 4 October 2017

Outline Definition of strategy When should the Procurement Strategy be defined? Function and influences on CERN Procurement strategy Other issues influencing the choice of the Procurement strategy Purchasing Supplies — Procurement Strategy

Definition of strategy 1 Definition of strategy “Understand the Ends to be attained”

1. Definition of strategy A strategy is a plan of action designed to achieve a specific goal. The necessary precondition for formulating strategy is a clear and widespread understanding of the objectives or ends to be obtained. “Without these ends in view, action is purely tactical and can quickly degenerate into nothing more than a flailing about.” Purchasing Supplies — Procurement Strategy

When should the Procurement strategy be defined? 2 When should the Procurement strategy be defined?

2.1 Contract management lifecycle Selecting the procurement strategy Specifying the activity Drafting and issuing tender documents Evaluating the bids Decision and implementation Monitoring of contract performance Purchasing Supplies — Procurement Strategy

2.2 When to start? Purchasing Supplies — Procurement Strategy

Strategy implemen-tation 2.3 When? Continuous flow!!!!! Strategic analysis Strategic choice Strategy implemen-tation Be prepared to modify the strategic choice if needed ! Purchasing Supplies — Procurement Strategy

Influences on CERN Procurement strategy 3 Influences on CERN Procurement strategy “These are the issues that should be discussed and documented in the start-up meeting document with a view to incorporating these into the qualification criteria and tender documents! Remember that for requirements above 750k CHF risks & the related mitigation strategies should be documented in the risk matrix.” Anders Unnervik – Head of Procurement Group

Influences on Procurement strategy 4. Cost 3. Supply market 5. Non-cost factors 6. Risks 2. Demand Strategy 1. Objectives 7. Stakeholders Purchasing Supplies — Procurement Strategy

3.1 Procurement objectives @ CERN Ensure contracts fulfil all the necessary: - Technical requirements - Financial requirements - Delivery requirements; Keep overall costs for CERN as low as possible; While achieving balanced industrial returns for the CERN Member States. Purchasing Supplies — Procurement Strategy

3.2 Procurement Demand @ CERN What is the estimated annual expenditure of the supply? - Forecast Who are the main users? - Group, Department, CERN-wide Demand cycle? - Fluctuating, seasonal, one-off Simple supply or a ‘bundle’ with services attached? Purchasing Supplies — Procurement Strategy

3.3 CERN’s Supply Market (1) (i) Market structure: How many suppliers? What is their size (production capacity, market share)? What is the level of product differentiation? Competition: How do suppliers compete ? (quality, price, service, CSR) Barriers to entry ? Market trends? Expected changes in technology? Purchasing Supplies — Procurement Strategy

3.3 CERN’s Supply Market (2) (iii) Supply chain: How complex is the supply chain? Is there a high level of dependency on sub-contractors? What are the typical delivery and transportation methods? Purchasing Supplies — Procurement Strategy

3.3 CERN’s Supply Market (3) Substitutes: Are there any substitute goods that can fulfil the same requirements? Importance as a customer: What is CERN’s market share as a customer? How attractive is CERN as a customer? Purchasing Supplies — Procurement Strategy

3.4 Cost Factors Total Cost of Ownership Initial investment Operating costs: Energy consumption Spares Maintenance Training etc. Disposal costs Purchasing Supplies — Procurement Strategy

3.5 Non-Cost Factors Compliance with the technical specifications; Compliance with industry norms and standards; Compliance with CERN-specific rules; Compliance with contractual terms and conditions; Legal issues (e.g. IPR etc); Reliability and financial standing of supplier Purchasing Supplies — Procurement Strategy

3.6 Procurement Risk Factors (1) High Low Low High Impact Should manage & monitor risk Must manage & monitor risk Must manage & monitor risk Consider taking risk Should manage risk Must manage & monitor risk Should accept risk Should accept risk but monitor Should monitor risk Likelihood Purchasing Supplies — Procurement Strategy

3.6 Degree of Risks (2) Dependent on the length of time and the difficulty in securing the supply: Standard / Off-the shelf industrial products Non-standard products which can be produced with existing manufacturing techniques and/or technologies, but industry has no experience of manufacturing the products New high-tech products requiring a conceptual design phase. The manufacturing methodology has to be developed Low risk Medium risk High risk Purchasing Supplies — Procurement Strategy

3.7 Key Stakeholders Identify internal stakeholders: HSE, Technical experts, Legal Service, Knowledge Transfer, End-users… Identify external stakeholders Local communes, Certification bodies, Host State authorities, Member States, Collaborating institutes). Consultation required to ensure needs are taken into account! Purchasing Supplies — Procurement Strategy

Other issues influencing the choice of the Procurement strategy 4 Other issues influencing the choice of the Procurement strategy “These are issues that should be discussed during the start-up meeting!” Anders Unnervik – Head of Procurement Group

4.1 Resources & Procedures Make or buy ? Availability of key staff ? 2. Rules & Procedures: Estimated amount ? Price enquiry, Invitation to Tender, single-source ? Sources of funding - CERN budget code / visiting team ? FC approval ? Service or Supply ? ‘Best Value For Money’ or ‘Lowest Compliant’ bid ? Urgency of requirement ? Purchasing Supplies — Procurement Strategy

4.2 Standard or Non-Standard? Off-the shelf or non-standard products which can be produced with existing manufacturing techniques and/or technologies: - Functional specification Non-standard products where industry has neither the required know-how nor the interest to develop and design the products: - Build-to-Print specification Prototypes and or Pre-series needed? Purchasing Supplies — Procurement Strategy

4.3 Dual Sourcing? Dual sourcing? - Purchase options Purchasing Supplies — Procurement Strategy

4.4 Evaluation and carrying risks Who can best evaluate and carry risks? Contractor or CERN? If Industry has no experience : CERN = General contractor providing tooling, components, raw material… (e.g. assembly of the LHC dipole cold masses where the main components and tooling (presses, superconducting cable, steel, etc.) were purchased by CERN and delivered to the cold mass assemblers). Purchasing Supplies — Procurement Strategy

4.5 Limits? 1. Limits on sub-contracting? 2. Frame contract or firm commitment? Purchasing Supplies — Procurement Strategy