LIVING WITH THE SQUEEZE PROCUREMENT, LEAN, SHARED SERVICES, OUTSOURCING Colin Cram Marc1 Ltd Tel: Mobile:

£Bn £Bn Total Public Sector Expenditure 660 State Pensions 117 Benefits/Welfare 109 Healthcare 119 Interest on Government Debt 31 Sub Total 376 ‘What’s Left’ 284 Forecast Reduction in Budget Deficit 70

The £280bn ‘what’s left’ expenditure includes areas where cuts are likely to be less than 25% Spend Cuts £Bn £Bn Defence: 44 5 Protection:(Police, Fire, Prisons, Courts) 17 2 Education: 86 9 Total What’s left? So Disproportionate Cuts likely for all remaining activities.

£Bn £Bn Savings from the most difficult areas (Welfare, State Pensions, Benefits, National Debt Interest) 8 Savings from Defence, Education, Protection 16 VAT Increase to 20% (revenue increase) 11.5 Sub Total 35.5 Savings to be found from remaining spend of £133bn: 34.5 i.e. 26% cuts.

Cutting Functions Greater Efficiency/Doing Things Differently Improving Procurement Increasing Revenue (particularly for Local Government)

‘No sane person imagines that by doing something the way they have always done it will deliver a different result’ ‘It is not necessary to change: Survival is not mandatory’ Deming:

√ Procurement √ Shared Services and Outsourcing √ Lean Use of IT Estates Rationalisation

£200 Bn pa 30% of Public Sector Costs £3,000 per Adult and Child pa £250,000 per person into the ‘Public Sector Purchasing Pot’ over a lifetime £1Bn Saving can save 30,000 front line jobs Parking/Traffic Management Procurement: Approx £1.5-2Bn pa © C M Cram

Traffic Management Procurement: Approx £1.5-2Bn pa What are the Best Areas to Tackle? What Ways are there to Make Procurement Savings?

Re-negotiate Benchmark Reduce Costs of Duplication Harmonise – procedures and specifications Enhance Power e.g. through aggregation Commitment Place Based Procurement Benchmark Restructure

What Areas Would be Suitable for Benchmarking? What Measures Might One Use? How Should the Sector Proceed? Any Offers to Take the Lead?

1% Savings Overall - do the same, but better 3% Savings Overall - Do the same, but much better 5% Savings Overall - Some re-structuring, bringing in new expertise 7% Savings Overall – Fundamental Change and Re-structuring

Indiscipline Different Procedures/Contract Ts and Cs Complexity – e.g. Tender Procedures Multiplicity of Tenders Multiplicity of ‘Duplicate’ Contracts and Contract Managers Inconsistency Specifications Very Varied Capability © C M Cram

Specifications: Tarmac IT Finance Systems Outsourcings Street Lighting Construction Waste Disposal Research Equipment Commodities Goods and Services How Consistent are Specifications for Parking Related Procurement? Who has the Best Specifications?

Increased Leverage Better Quality Contracts Expertise Available to All Commodity Market Knowledge Available to All Better/More Consistent Policy Implementation Consistent Specifications Opportunities to Use More Advanced Purchasing Techniques -Relationship Management -Supply Chain Management -Value Analysis

Right Procurement Structures Information Common Information/IT Systems Discipline Expertise

1. Each Organisation Acts Independently 2. Benchmarking 3. Collaboration 4. Joint Local 5. Joint Regional 6. Sector Procurement 7. National Procurement

MODEL EVALUATION How Should the Sector Proceed? Collaborative Model/ Objectives IndB/MarkCollabJoint Local Joint Region SectorNational Leverage Negotiation Market Management Common Procedures Consistent Legal Interp Consistent Specs Fewer Tenders Expertise Service Localism TOTAL © C M Cram

Furniture 30% FM/Outsourcing/Major Contracts Up to 35% Laboratory Consumables Up to 90% IT 5 – 80% Construction 5 – 25% Excellent Construction Management 5 – 15% Social Care 10% Legal Services 10% Good Contracts Management 5 – 35% What Might Be the Potential for Parking/Traffic Management? © C M Cram

INDEPENDENCE COLLABORATION INTEGRATION © C M Cram PUBLIC SECTOR PROCUREMENT: THE FUTURE?

Customs and Excise Pay Branch Ministry of Defence Stores Meteorological Office Procurement Stationery Procurement NHS Revenue and Customs – PaceSetter 6 Sigma: Reduce Variations within Processes Lean: Smooth Flow in these Processes

Understand How One’s Services add Value to Customers Optimise the Value Adding Elements of Services and Eliminate Waste Deliver Right Services, Right First Time Empower Staff Involve Staff Performance, People, Resource Planning, Skills Planning, Continuous Improvement

Leadership – totally dedicated Genuine Endorsement from the Top Identify Teams of People willing to give it a try Early Small Pilots – deliver Quick Wins Involvement and Ownership by the Staff

Decide Outcome required and How its Achievement can be Measured Examine end to end Process. How far does it deliver the desired outcome? Examine and Map individual Processes Evaluate how essential each Process is to achieving the desired Outcome How much time does each Process take. What is its added Value? Re-design individual and End to End Process to Deliver Required Outcomes Introduce any Technology with Caution. No Point in Automating the Wrong Thing WHO ARE THE BEST PEOPLE TO DO THIS? THE STAFF

Technical Change Can Help BUT Lean is a Cultural Change. It is not One-Off WHAT ARE THE OPPORTUNITIES FOR LEAN?

Eliminate Duplication Reduced Costs/Economies of Scale Staffing Buildings/Construction Access to Expertise/Higher Standards for All? Savings in: Staffing, Buildings/Construction, Energy, Running Costs, Equipment, Processing Costs, IT, Licenses, Procurement Greater Opportunities to Generate Income Public Sector Organisations with Lower Activity Levels have Higher Costs

Benchmarking Copying Better Practice Collaboration/Consortia Joint Service Delivery Service Centres Outsourcing to a Common Provider NOT A MAGIC FORMULA

Within Sector (e.g. Local Government) Between Sectors National, Regional, Local Does Split between NHS, Local Government and HE Make Sense?

Be Realistic about the Potential Benefits Be Realistic about what can be Achieved A lot of it about Don’t Expect Accolades! Be Realistic about Obstacles

Least Controversial Quicker Less Costly Quick Potential for Benefits Realisation Reasonable Chance Of Success But, often resistance to change What Could be Benchmarked in Parking? With Whom? How Should the Sector Proceed?

BENEFITS through Aggregation Commonality of Specifications Commonality of Procedures Doing Things Once BUT Often Difficult to Agree Time Consuming - the Effort can be Expensive Day Job Takes Precedence

Controversial Long Timescale – but not necessarily Can be Complex Can be Expensive Higher Risks To Service Higher Risk Of Non-completion EU Procurement Directives BUT: LONG TERM BENEFITS MAY JUSTIFY IT

IT 5 – 80% Construction 5 – 25% Excellent Construction Management 5 – 15% Social Care (children’s) 5% Legal Services 10% Revs and Bens 15% Procurement Costs % Procurement Spend 20% Transport 10% BUT: Outsourcing Companies Often Take Out 30-40%

Identifies and Highlights Costs of Current Activities Often the Catalyst to Introduce Major Change Defined Service Levels Service Level Agreements Performance Measures Accountability However, there will be some management and change costs, so total cost of joint service organisation must be less than 95% of what it replaces.

Reduced Costs Through Efficient Use of Depots Efficient Use of Vehicles Greater Purchasing Power for Equipment Reduced Management Costs Management by Best Managers? Single Method of Collection and Sorting Overall Savings 10%+

The Transfer of Part or Whole of an Existing In- house Activity to a Third Party. This May Include the Related Human Resources and/or Assets More complex to implement than Shared Services, but often easier ‘politically’ to decide

1. Must Know Existing Costs 2. Must Know Costs to Outsource e.g. Switching Cost5% Management Cost 5% Gross Profit % To Deliver a Better Cost Base to the Customer, the Outsourcer’s Cost Base Must be only % of Current Operations. It is often only 60%.

Strategic Organisational Fashion / Emotion It’s A Mess – Give It To Someone Else To Do It Financial / Survival Only Way to Secure Sufficient Change Bury The Past Access The Future

Focus On Core Strategic Activities Gain Competitive Advantage Increase Flexibility Access To Expertise Acquire Innovative Ideas Develop Strategic Partnership Enable Major Organisational Changes Insurance Against Market Conditions Job Creation/Regeneration

Consistent With Business Strategy Financial Appraisal: - Clear View Of Existing Costs - Need Understanding Of Supply Costs Option Appraisal - Risk Analysis - Benefits

LEANB/MARKJOINTOUTSOURCE SAVINGS SERVICE ACCOUNTABILITY ACCESS TO EXPERTISE INNOVATION INCOME JOB CREATION INWARD INVESTMENT TOTAL © Marc1 Ltd

LEANB/MARKJOINT OUT- SOURCE COSTS TIME RESISTANCE TO CHANGE CONTRACTING CAPABILITY COMPLEXITY TECHNICAL SLOWER PROGRESS SECURITY TOTAL © Marc1 Ltd

DEVELOP STRATEGIC PLAN MISSION BUSINESS OBJECTIVES POLITICAL OBJECTIVES OUTLINE BUSINESS CASE POTENTIAL INITIATIVES, OPTION ASSESSMENT MARKET ANALYSIS ENABLERS, INFRASTRUCTURES, RESOURCES TIMESCALES VISION © Marc1 Ltd STRATEGY

Plan Long Term Strategy and Programme Get “Quick Wins” through Process Improvement, Benchmarking and Copying Better Practice

Colin M Cram Marc1 Ltd Tel: Mob:

Central/ Major Departments/ Buying Solutions Industry Specific Regional P S Hubs/ Medium Depts Local/Med/ Small Departments Major National Contracts/Suppliers ** Common Categories ** Relationship Management ** Market Management ** Industry Specific ** PPIs/Major Project Support * ** Regional/Large Local Contracts/Suppliers * Small Local Contracts ** Discipline/Implementation/ Compliance ** © C M Cram

OUTSOURCING ABROAD OUTSOURCING UK SHARED SERVICE KEEP IN-HOUSE DATA SECURITY SUPPLY CHAIN LENGTH QUALITY CURRENCY TOTAL © Marc1 Ltd