The LEAN Sourcing Approach Briefing & self-starter pack for procurement staff

1. The LEAN Sourcing ApproachBriefing & self-starter pack for procurement staff Version 1.0 UNCLASSIFIED

2. The Procurement Reform Agenda • The Coalition Government has set out the requirement to support the implementation of the Growth Agenda and to ensure that more Small & Medium Sized Enterprises (SMEs) /Voluntary, Community Social Enterprises (VCSEs) win government contracts.  The requirement includes a new approach to the way central government departments carry out procurement. • This requires departments to think very differently about how procurements are planned and delivered. • Subsequently, this requires a much closer working relationship between procurement staff and colleagues from policy areas and project management functions than has previously been the case. • The new approach has been endorsed by Francis Maude, the Minister for the Cabinet Office and all central government departments and their ALBs are required to adopt it.

3. The new policy requirements • The new approach comprises the following new government policy requirements: • Adoption of a LEAN sourcing approach that strips out waste and reduces costs • A requirement to carry out significant levels of pre-procurement market engagement with diverse range of prospective suppliers, including SMEs in order to warm-up the market, test our thinking and generate ideas for innovation as part of the development of outcome-based specifications. • Contracts should be broken down into lots where appropriate, and requirements that are below the value of £100K should be rapidly sourced through the new Government Dynamic Market place. • All Government procurements are strongly encouraged to use the Open Procedure. • There is now a presumption against the use of the Competitive Dialogue procedure which has often resulted in slowing things up unnecessarily and typically incurs huge costs on both sides. • There is an expectation that all but the most complex procurements are completed within 120 working days (publication of the advert to the contract award decision date).

4. What this means for our department • Collectively, we need to develop: • A detailed understanding of what the pipeline of potential procurements is so that these can be planned and resourced effectively • Strong recognition within business areas that early engagement and joint working with the procurement function (as part of a multi-disciplined procurement team) is a critical success factor • A full understanding of the key principles of the LEAN sourcing process and how engagement with suppliers in the market before establishing a formal procurement process has to become standard practice (we can no longer rush out with an advert) • Strong acceptance that large complex contracts with large suppliers are no longer going to be permitted (in the vast majority of cases) and that increasing the number of contracts awarded to SMEs/VCSEs (through breaking down requirements into lots) is the new way forward (where appropriate). • Strong recognition that departmental performance in delivering procurements within 120 days will be subject to ongoing scrutiny by ERG and No10 and that we can only achieve this by working together. • More efficient and effective approaches to taking business decisions to ensure that we do not incur any unnecessary delays.

5. 7 key principles of the new approach 1. Establish a clear understanding of required business outcomes Strong focus on preparing to go to market This is a key activity that takes time and careful planning 2. Engage with the market in order to shape and confirm that the business requirement is attractive to a diverse range of suppliers 3. Use LEAN thinking and visual tools to set up and run a well planned and efficient process 4. Do not commence formal procurement until thorough engagement with suppliers has taken place. Strong focus on running a fast procurement process This is a key activity that requires collective effort and is dependant on effective preparation 5. Streamline any engagement with suppliers and stakeholders by using a ‘boot camp’ approach to make best use of limited time 6. Use e-sourcing tools to support the procurement and follow the LEAN Standard Operating Procedures (SOPs) 7. Measure and manage performance through continued focus on turnaround times and costs. Advert to contract award decision date should be completed within120 working days

6. Key principles Procurement perspective 1. Establish a clear understanding of required business outcomes - focus on the voice of the customer The standard LEAN sourcing solution A repeatable step-by-step approach to LEAN sourcing for above OJEU procurements. The process is designed to reduce turnaround times and the cost of resources required to run successful procurements using Open, Restricted & Competitive Dialogue procedures. ctc Key principles from a Procurement perspective 1. Establish a clear understanding of required business outcomes 2. Carry out extensive pre-procurement market engagement with industry before the formal procurement process begins; use and advertise structured and time boxed industry days to test and refine thinking 2. Engage with the market in order to shape and confirm that the business requirement is attractive to a diverse range of suppliers 3. Establish a strong planning and management discipline using the LEAN standard solution as a guide; use visual management to drive progress 3. Use LEAN thinking and visual tools to set up and run a well planned and efficient process 4. Ensure proper readiness to go to market by publishing a full bidders pack (outcome/output based specification, draft Ts & Cs and project plan) at the point of going to market (e.g. OJEU) 4. Do not commence formal procurement until thorough engagement with suppliers has taken place. 5. Streamline engagement with suppliers by using a ‘boot camp’ approach to make best use of limited time and resources 5. Streamline any engagement with suppliers and stakeholders by using a ‘boot camp’ approach to make best use of limited time 6. Utilise OJEU compliant e-sourcing tools to help manage a fully efficient sourcing process 6. Use e-sourcing tools to support the procurement and follow the LEAN Standard Operating Procedures (SOPs) 7. Drive continuous improvement by application of the LEAN sourcing Standard Operating Procedures and by monitoring and measuring performance; Challenge deviation from the standard solution to assure efficiency of the process 7. Measure and manage performance through continued focus on turnaround times and costs. Advert to contact award decision date should be completed within 120 working days

7. Procurement routes – our choice has become limited

8. Setting expectations • LEAN sourcing - the procurement process has not changed • Wasteful practices have been removed and highly efficient best practice (government & industry) has been built into it • Strong consideration has been given to the supply side in the design of the process – in particular SMEs/VCSEs • You should recognise the good practice that is set out within the process • Applying your professional judgement when following the LEAN process is a critical success factor

9. What you should get from this briefing... • Good awareness of the LEAN sourcing process and how the Government’s SME policy requirements fit into it • An insight into the components of the LEAN standard solution and the benefits of applying it • Sufficient knowledge and confidence to start to apply the standard solution on forthcoming procurements

10. Procurement Route Decision Tree Analyse the requirement to ensure that you have a sound understanding of business outcomes required, and consult the marketplace early You have been approached with a new requirement OR you have an operational imperative – e.g. an expiring contract Start Refer to the Government Procurement Service. Is your requirement covered by Government's Central Procurement Programme? YES YES NO YES NO Engage the market to sound out ideas on the best way to shape, and where possible, simplify and breakdown the requirement NO Use pre-existing departmental or cross government arrangement Is your requirement covered by an existing departmental or cross government contract? Now that you have completed pre procurement market engagement (including publication o f a project specific PIN and Industry Bootcamp) you should now be able to define and specify (in accordance with the appropriate EU Regulations): Can you define and specify in accordance with regulations the following: How the project outcome will be delivered, and How the contract and commercial deal will be structured Yes but there is strong evidence the market is very large and that pre-qualification is the only option YES OPEN PROCEDURE RESTRICTED PROCEDURE Confirmed by Commercial Director / Head of Procurement Follow the Restricted Procedure LEAN sourcing Standard Operating Procedures. Use mandatory standardised PQQ and ensure it contains proportionate and relevant criteria. COMPETITIVE DIALOGUE PROCEDURE Government presumption against its use Use of Competitive Dialogue may be challenged by ERG. Follow the Competitive Dialogue LEAN sourcing Standard Operating Procedures. Use the Open Procedure following the LEAN sourcing Standard Operating procedures There is a government commitment to move towards greater use of the Open Procedure

11. The new LEAN sourcing process – the 5 Stage Process Sourcing and Contracting Pre-Procurement Market Engagement 1. Business need & baselining 2. Market analysis & sourcing strategy 3. Supplier identification 4. Execution of sourcing strategy 5. Finalise contract Pre-OJEU readiness - the preparation and subsequent publication of a bidders pack at OJEU including requirements, draft terms and conditions, selection criteria, evaluation strategy and criteria and procurement timescales. This transparency allows suppliers to make informed decisions as to whether they wish to bid. Use standstill period to prepare for publication of the contract documentation and to finalise delivery and contract management plans Talk to potential suppliers, publicise requirement (preferably by using a project specific PIN) to warm the market up and advertise the industry engagement event Execution of sourcing strategy through structured workshops, boot camps and tightly managed project plans Driven by visual management tools Industry boot camp to capture the suppliers’ views on your requirement, on the viability, and on possible delivery options and where appropriate to facilitate meetings between suppliers to explore the potential for the establishing consortia, partnering arrangements and / or subcontracting opportunities. The new approach requires more work to be carried out before going to market Establish a project planning and performance hub in the mobilisation phase and use visual management and e-sourcing tools to drive the process and to measure and manage performance including turnaround times in line with the 120 day target. Mobilisation

12. Pre-procurement market engagement • The LEAN sourcing process has a strong focus on pre-procurement market engagement: Market analysis - engaging early with the market: • Encourages innovation – buyers get to hear what potential solutions suppliers can offer and suppliers are aware of the requirements. • Enables buyers to test the market’s response to their high level requirements, (including any socio economic factors) • Saves time and cost when the procurement process begins; suppliers can deselect themselves for opportunities they know they are not suitable for • Allows for consortia formation Questions we need to ask ourselves: • Have we consulted with a broad range of suppliers through interactive supplier days? • What is the supplier makeup of the market? Particularly those markets where there is a high SME prevalence?

13. Considering different ways of going to market Sourcing strategy • Use this engagement to consider whether there is opportunity to break requirements into smaller lots whilst maintaining a focus on the requirements of the business Questions we need to ask ourselves • Have we considered what size of contract is most suitable for the requirement? • What is optimum contract duration, size and value?(contract value is a key determinant for SME and Voluntary, Community Social Enterprises (VCSEs) engagement) • Have we made it clear that we are willing to consider bids from consortia arrangements and allowed appropriate time for consortia to form and bid? The Procurement Process itself – removing barriers for SMEs

14. Planning for project approvals Sourcing and Contracting Pre-Procurement Market Engagement 1. Business need & baselining 2. Market analysis & sourcing strategy 3. Supplier identification 4. Execution of sourcing strategy 5. Finalise contract Mobilisation • Approvals can be time consuming and can in extreme circumstances cause significant delays • There are various Cabinet Office spending control mechanisms and processes in place which need to be understood. See: http://www.cabinetoffice.gov.uk/resource-library/cabinet-office-controls-guidance-actions-and-processes-document • Key message: be prepared, build these activities into the plan and minimise the delays by having all of the documentation ready. Brings a sharper focus to planning. In particular, mapping out what approvals and assurance are required and the preparations required to be made by the team

15. LEAN Sourcing Process – General Overview Business need, baselining & market analysis Sourcing strategy Supplier identification Execution of sourcing strategy Finalise contract Mobilisation 8. Contract Signature Formal signature of contract 7. Contract Award Notify the supplier and finalise the contract 1. Business Need Identification, Baselining & Market Analysis Ensure identification & clear articulation of the business need 6. Evaluation of Tenders The best solution is established through evaluation of tenders 4. Supplier Identification (OJEU) Publish requirements through a contract notice in the supplement to the Official Journal of the European Union 3. Sourcing Strategy Establish the procurement & identify sourcing strategy 22 to 66 calendar days from issue of OJEU 10 days Use e-sourcing tools Drive continuous improvement in turnaround times by measuring performance 5. Supplier clarification Respond to all questions & clarifications simultaneously Talk to business stakeholders Talk to suppliers Ensure that you are ready to go to market 2. Mobilisation The sourcing team is set up for success, all associated stakeholders are clear on requirements of the business need Issue of OJEU Notice Establish a strong PPM discipline approach and deploy visual management techniques To be completed within 120 working days

16. Pre-OJEU Procurement: OJEU to Award In summary...... Setting up for success - readiness Developing a clear understanding of requirement business outcomes Engaging with suppliers in the market and identifying opportunities for innovation and/ or breaking requirements into more attractive lots Developing a detailed understanding of the business requirement and constructing it in a way that will be clear and attractive to the market Getting a team in place with the right capabilities and a clear delivery plan (that takes into account approval and assurance points) Execution Operating a highly efficient process in line with the plan, which focuses on reducing turnaround times and costs to both the client and the suppliers within the competition but maintains quality Pipeline of known procurements Key points The more quality time that is spent on pre-OJEU activities the more efficient the procurement is likely to be. Reduced turnaround times (OJEU to award) = reduced costs and improved resource utilisation LEAN sourcing is not about cutting corners it is about improving efficiency, and quality as part of a repeatable approach that is subject to continuous improvement New policy imperatives that may require procurement The pool of scarce resources • Risk • Failure to complete the pre-OJEU activities is likely to result in three things occurring: • A protracted procurement incurring significant costs • A business outcome that is sub-optimal • Dissatisfaction of key business stakeholders

17. The LEAN standard solution set • Components comprise of: • Value Stream Map (a “route map”) • Standard operating procedures (SOPs) - (“what to do” instructions) • Standard implementation plan (activities based on SOPs) • Visual management (tools and templates to drive progress and performance as part of a hub) • A set of key performance indicators to help drive continuous improvement • One core process with three variants: Open, Restricted & Competitive Dialogue

18. LEAN Sourcing Standard Solution Standard Operating Procedures (SOPs) A set of high level desk instructions describing the best known method for carrying out the activities described in the value stream map The Standard Solution enables the execution of the LEAN sourcing process. It provides a suite of tools that you can use to execute the sourcing process from business need identification and baselining through to contract award & signature. Procurement Route Decision Tree A tool to assist procurement professionals to think through and identify the most appropriate procurement route for their requirement. Visual Management A way of displaying information to drive the performance of the process & specific parts of the process Value Stream Map The route map which sets out the LEAN sourcing process. Team Implementation Plan (TIP) An action plan showing who will do what and when in specific functions and processes KPIs Performance indicators to measure turnaround times and cost of running procurements.

19. Open – Simplified Routemap 7. Overview Open Pre procurement market engagement Sourcing & Contracting Business need, baselining & market analysis Sourcing strategy Supplier identification Execution of sourcing strategy Finalise contract Mobilisation Deployment of OJEU compliant e-sourcing tools to support the sourcing process 8. Contract Signature Purpose - Formal signature of contract 7. Contract Award Purpose – Notify the supplier and finalise the contract 1. Business Need Identification, Baselining & Market Analysis Purpose - To ensure identification & clear articulation of the business need 6. Execution of Sourcing Strategy through Evaluation of Tenders Purpose - The best solution is established through evaluation of tenders 3. Sourcing Strategy Purpose - To establish the procurement & identify sourcing strategy 4. Supplier Identification (OJEU) Purpose -To publish requirements through a contract notice in the supplement to the Official Journal of the European Union 10 days 22 to 36 days from issue of OJEU Comprising 3 SOPs - approval to award, issue alcatel letter, debrief suppliers & update full business case Comprising 1 SOP – sign contract and publish contract on Contracts Finder. Comprising 3 SOPs – Receive & sort tenders create a tender summary , conduct compliance check & clarification, evaluate tenders, apply mandatory & discretionary pass/fail criteria first before qualitative evaluation & write an evaluation report Comprising 5 SOPs ranging from developing a procurement strategy , creating the bidders pack , developing the OJEU contract notice through to carrying out assurance and gaining legal approval Comprising 8 SOPs ranging from analysing the needs of stakeholders, carrying out benchmarking, warming up the market (publishing a project specific PIN), holding an industry boot camp through to using the procurement decision tool Comprising 1 SOP– Publish the OJEU contract notice and issue the bidders pack (ITT) 5. Supplier clarification Purpose - To respond to all questions & clarifications simultaneously • Application of the key LEAN sourcing principles: • Ensure a sound understanding of business outcomes- voice of the customer (1) • Advertise potential requirement(1) • Establish a planning & management discipline using visual management tools (2) • Structured industry engagement – boot camp (1) • Readiness for OJEU – Bidders pack containing outcome / output based requirements (3) • Use e-sourcing tools to support the process (1 to 8) • Drive continuous improvement & reductions in turnaround times (1 to 9) 2. Mobilisation Purpose – the sourcing team is set up for success, all associated stakeholders are clear on requirements of the business need Comprising 3 SOPs – establishing an online Q&A, update resource plan check availability of evaluation team and then briefing the evaluation team. Comprising 5 SOPs ranging from establishing a cross disciplined team, creating a performance hub, establishing governance through to planning for approval.

20. Open – Standard Operating Procedures (SOPs)

21. What a Standard Operating Procedure looks like..... The Standard Operating Procedures (SOPs) are a set of high level desk instructions. They describe the best known method for carrying out the activities in the value stream map for each stage of the procurement process. The left hand column describes the “operation” or activity step, the centre column provides the detail and the right hand column contains examples or relevant links to other materials available on the internet, for example, the HMT green book templates for business cases. Signifies a key risk of not carrying out the activity appropriately. Identifies a point of built in quality within the activity. Illustrates an “ease” point, for example where there is an existing template for completing the activity.

22. Restricted – Simplified Routemap Pre procurement market engagement Sourcing & Contracting Business need, baselining & market analysis Sourcing strategy Supplier identification Execution of sourcing strategy Finalise contract Mobilisation Deployment of OJEU compliant e-sourcing tools to support the sourcing process 10 days 30 days from issue of OJEU 6. Finalisation of Supplier Identification Purpose - To identify a potential list of qualified suppliers 9. Contract Signature Purpose - Formal signature of contract 1. Business need identification, baselining & market analysis Purpose - To ensure identification & clear articulation of the business need 7. Execution of Sourcing Strategy through Evaluation of Tenders Purpose - The best solution established through evaluation of tenders 8. Contract Award Purpose – Notify the supplier and finalise the contract 3. Sourcing Strategy Purpose – To establish the procurement & identify sourcing strategy 4. Supplier Identification (OJEU) Purpose - To publish requirements through a contract notice in the supplement to the Official Journal of the European Union 22-36 days Comprising 1 SOP – sign contract and publish contract on Contracts Finder Comprising 4 SOPs – ranging from evaluate responses to selection criteria, agree ranked list, write evaluation report, notify suppliers, and issue ITT through to online Q&A facility for ITT clarifications Comprising 3 SOPs - approval to award, issue alcatel letter, debrief suppliers & update full business case Comprising 8 SOPs ranging from analysing the needs of stakeholders, carrying out benchmarking, warming up the market (publishing a project specific PIN), holding an industry boot camp through to using the procurement decision tool Comprising 3 SOPs – ranging from receive and sort tenders, and conduct compliance check through to evaluate tenders, write evaluation report and write full business case Comprising 5 SOPs ranging from creating the proc’t strategy, bidders pack and contract notice through to carry out assurance and gaining legal approval 5. Supplier identification Purpose - To identify a list of qualified suppliers Comprising 1 SOP – Publish the OJEU notice and bidders pack Comprising 3 SOPs – establishing an online Q&A, check evaluation team availability through to brief evaluation team on criteria & methodology • Application of the key LEAN sourcing principles: • Ensure a sound understanding of business outcomes- voice of the customer (1) • Advertise potential requirement(1) • Establish a planning & management discipline using visual management tools (2) • Structured industry engagement – boot camp (1) • Readiness for OJEU – Bidders pack containing outcome / output based requirements (3) • Use e-sourcing tools to support the process (1 to 9) • Drive continuous improvement & reductions in turnaround times (1 to 9) 2. Mobilisation Purpose – the sourcing team is set up for success, all associated stakeholders are clear on requirements of the business need Comprising 5 SOPs ranging from establishing a cross disciplined team, creating a performance hub, establishing governance through to planning for approvals.

23. Restricted – Standard Operating Procedures (SOPs)

24. Formal training • GPS is rolling out training across central government which will comprise: • 1 day LEAN Sourcing Awareness course • 3 day LEAN Sourcing Simulation workshop • Initially the both course types will be classroom based but an e - learning package is being developed to replace the 1 day course. This should be available by June 2012. • Further information will be available from GPS by phoning the service desk on 0345 4102222 or by emailing training@gps.gsi.gov.uk

25. Access to the LEAN sourcing materials http://procurement.cabinetoffice.gov.uk/ http://gps.cabinetoffice.gov.uk/node/1109 UNCLASSIFIED 23

26. Next steps • Gain access to the LEAN sourcing materials • Download and read the Standard Operating Procedures – your starting point should be the set that covers the Open procedure • Consider how these procedures and the key LEAN principles can be applied to forthcoming procurements • Apply the principles to your procurement using the Standard Operating Procedures as a mechanism to ensure that you are following the LEAN process • Note – It will be important to capture turnaround times (the time taken in working days from the publication of the Advert to Contract Award) – as our department’s performance against the 120 day target will be subject to ongoing scrutiny from the department, ERG & No10.