Examining shared service innovation – the “i before e”-procurement project

1. Examining shared service innovation– the “i before e”-procurement project Chris Keady, London Borough of Brent Chairman, London Contracts and Supplies Group

2. This presentation • The vision: ‘i before e’- Procurement • The 2 avenues of research: • The opportunity: investigate the scope for savings in Construction and Housing • The technology: look at what tools are available, specify and develop case study demo of what’s required and how it would work • Progress to date, initial conclusions and next steps

3. The Vision “To collaboratively develop and promote a low cost, intuitive, multi-benefit, plug and play, interoperable strategic procurement tool, providing visibility of existing and planned procurement activity, associated risks, and market information/intelligence for current/prospective suppliers” NePP PID 12/03

4. ‘i before e’- Procurement:- information drives the benefits • e-Procurement means taking a strategic approach to purchasing • But in order to build a strategy you have to know what is actually going on • We believe savings of 10-15% are achievable (on an £8bn spend) by: • Collecting forward planning data on a standardised basis for a group of Councils • Aggregating demand forecasts and sharing this with suppliers • Creating framework agreements and building stronger relationships with key suppliers • To test this, we researched 2 large spend areas: • Road Maintenance • Housing Maintenance

5. Progress to date • We worked with 6 councils in West London: • We carried out desk research to establish what information was publicly available • We submitted the questionnaire to managers in road maintenance and council house renovation to establish the likely purchasing patterns

6. Questionnaire Outline - to 6 West London Boroughssubmitted to managers in road maintenance & council house renovation • What have you spent over the last 3 years? • What is planned to be spent in the next 3 years? • Categories: • Building Materials – New Build – Bricks/Cement/Windows etc • Building Materials – Maintenance – Paint, Plumbing, Electrics,Pointing, Guttering etc • Road Materials – Tarmac, Hardcore, Gravel etc • Drainage Works • Traffic Works materials – Bollards, signage etc • Skills required in different areas

7. Road Maintenance – the Local Govt Category List provides a standard template to collect data

8. And here’s some of the data for 3 Boroughs:

9. Housing – again, a standard template is possible(source:Hounslow £35m forecast 2004/5-2006/7)

10. So here’s what the Boroughs are planning to spend

11. Housing Maintenance spending is going up • Total value of repairs needed by each Borough is publicly available: • Brent £65,660 • Ealing £313,040 • H & F £65,331 • Hillingdon £90,167 • Hounslow £248,975 • Spend is uneven, year to year – heavy concentration on eg roofs or kitchen and bathrooms • Spend over next few years will increase as level of homes improved via spending through ALMO’s catches up with back-log.

12. In some cases we have detailed spending forecasts:(source:Hammersmith and Fulham ALMO) Source: Hammersmith and Fulham ALMOForecast

13. The opportunity… • What costs are the suppliers passing on? • Having to hold large inventories • Having to build in capacity ‘buffers’ • Having to employ premium skills at short notice • Having to buy supplies inefficiently at short notice • What can we do about it? • Improve forward demand planning – we know the data is available PROVIDED THERE IS SUFFICIENT MOTIVATION • Share forecasts with each other and with suppliers • Standardise products and materials, reduce inventories • Source aggregated requirements direct from materials suppliers; provide call-off arrangements for contractors… • Enable suppliers to train in-house rather than buying in skills to meet short term demand

14. The opportunity: initial conclusions • Annual spend on goods & services in London is £8bn • The areas considered represent £1.7bn, second only to Social Services • We believe that savings of 10-15% is realistic by better use of forecast data across Boroughs • This will take a number of years to come into full effect due to the existing range of term, pfi and other framework arrangements already in place. But 2-3% would be as much as the rest of e-procurement is set to achieve and that is readily available • We are concerned that the way ALMOs are being set up they will not be inclined to (and may not be free to) collaborate. This may block the opportunity to make significant savings

15. Okay, back to the Vision – a reminder: “To collaboratively develop and promote a low cost, intuitive, multi-benefit, plug and play, interoperable strategic procurement tool, providing visibility of existing and planned procurement activity, associated risks, and market information/intelligence for current/prospective suppliers” So what about the technology? Is it able to deliver this?

16. Technology - current reality • My vision turns out to be ahead of the marketplace reality • User needs are still evolving • Most suppliers are 1 to 2 generations behind needs • But purchaser skills in public sector lag behind even this level of the product’s capability • Change management “will be critical” • However we have come across a software tool that could provide us most of what I wanted and is relatively easy to use…

17. Some sample outputs Source: DecisionMAX Software

18. Technology – conclusions and next steps • Technology is now emerging that could achieve the vision, but… • … it might be too sophisticated for the users • It is too soon to say how well the prototype will deliver the requirements and if it is sufficiently low-cost and intuitive, but we are excited by what we have seen • Opportunity for a group of WLA/LCSG councils to become beta-test sites for strategic procurement tool • Project PID being prepared • Do you want to participate?