Guide to procurement

1. Guide to procurement Presented by Tony Wiltshire

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

3. What is YOUR view of Procurement?

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

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

6. Procurement at Leeds

7. Procurement at Leeds • 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 • Procurement Resources • Corporate Procurement Unit • Public and Private Partnership Unit • Departmental Resources (e.g. ADS, Social Services)

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

9. Procurement Essentials

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

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

12. Procurement EssentialsProcurement and Contract Management • Project management • Project organisation • Risk management • Procurement cycle • Gateway review process • Contract management • Supplier relationship management

13. The Procurement Cycle

14. 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

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

16. The Supply Positioning Technique

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

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

19. Making Savings Risk Invest in securing supply NO SAVINGS Cost Avoidance Value for Money Cost Avoidance Bottleneck Strategic Efficiency Savings Aggregation Aggregation Quick Wins Take Advantage Routine Leverage Value

20. How Suppliers See Buyers Account importance Development Core Nuisance Exploitable Spend

21. Procurement Spend Analysis

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

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

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

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

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

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

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

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

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

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

32. Tools and Techniques • Standard tender evaluation model developed so tenders are evaluated on best value principles • Contractor performance monitoring strengthened • Rationalisation of Approved Lists System • Develop relationships with suppliers • Move away from contract guarantee bonds • A strategy be developed to counteract false information including IS0 9000 certifications

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

34. 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

35. Performance Monitoring • ISO 9001 and ISO 14001 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

36. 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

37. Performance Monitoring ctd • 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

38. Participant Exercise 5 stages of the procurement process: • Plan • Tender • Evaluate • Award • Manage

39. Questions tony.wiltshire@leeds.gov.uk